You have just been hired by FAB Corporation, the manufacturer of a revolutionary

Question

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company's costing system and do what you can to help us get better control of our manufacturing overhead costs." You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control. After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March: Actual Cost in March $ 21,500 S 69,200 $ 8,600 $121,700 $ 70,000 Cost Formula Utilities Maintenance Supplies Indirect labor Depreciation $68,300 $16,400 plus $0.15 per machine-hour $38,000 plus $1.70 per machine-hour $0.40 per machine-hour $94,400 plus $1.20 per machine-hour During March, the company worked 20,000 machine-hours and produced 14,000 units. The company had originally planned to work 22,000 machine-hours during March. Required 1. Prepare a flexible budget for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) FAB Corporation Flexible Budget For the Month Ended March 31 Utilities Supplies Indirect labor Total 2. Prepare a report showing the spending variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect i.e., zero variance). Input all amounts as positive values.) FAB Corporation Spending Variances For the Month Ended March 31 Utilities Supplies Indirect labor Total

Explanation / Answer

1) Activity variance :

2) Spending variance :

Utilities 300 F Maintenance 3400 F Supplies 800 F Indirect labour 2400 F Depreciation 0 None Total 6900 F

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