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 $ 20,910 $ 57,500 $ 11,700 $117,200 $ 69,500 Cost Formula Utilities Maintenance Supplies Indirect labor Depreciation $67,800 $16,900 plus $0.13 per machine-hour $38,200 plus $1.50 per machine-hour $0.70 per machine-hour $94,200 plus $1.30 per machine-hour During March, the company worked 15,000 machine-hours and produced 9,000 units. The company had originally planned to work 17,000 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 Maintenance Supplies Indirect labor Depreciation Total

Explanation / Answer

Flexible budget for 15000 machine hour is as below. Unit Production has no relevance for calculations.

FAB CORPORATIONS

FLEXIBLE BUDGET

FOR THE MONTH ENDED MAR 31

FLEXIBLE Budget

Workings

Utilties

$18,850

$16900 FIXED + ($15000*.13) VARIABE

Maintenance

$60,700

$38200 FIXED + ($15000*1.50) VARIABE

Supplies

$10,500

$10500 FIXED + ($15000*.70) VARIABE

Indirect Labour

$113,700

$19500 FIXED + ($15000*1.30) VARIABE

Depreciation

$67,800

$16900 FIXED

Total

$271,550

FAB CORPORATIONS

Spending Variances

FOR THE MONTH ENDED MAR 31

FLEXIBLE Budget Value

ACTUAL Value

VARIANCE

Favourable/Unfavourable

Utilties

$18,850

$20,910

$2,060

U

Maintenance

$60,700

$57,500

$3,200

F

Supplies

$10,500

$11,700

$1,200

U

Indirect Labour

$113,700

$117,200

$3,500

U

Depreciation

$67,800

$69,500

$1,700

U

Total

$271,550

$276,810

$5,260

U

Flexible budget for 15000 machine hour is as below. Unit Production has no relevance for calculations.

FAB CORPORATIONS

FLEXIBLE BUDGET

FOR THE MONTH ENDED MAR 31

FLEXIBLE Budget

Workings

Utilties

$18,850

$16900 FIXED + ($15000*.13) VARIABE

Maintenance

$60,700

$38200 FIXED + ($15000*1.50) VARIABE

Supplies

$10,500

$10500 FIXED + ($15000*.70) VARIABE

Indirect Labour

$113,700

$19500 FIXED + ($15000*1.30) VARIABE

Depreciation

$67,800

$16900 FIXED

Total

$271,550

FAB CORPORATIONS

Spending Variances

FOR THE MONTH ENDED MAR 31

FLEXIBLE Budget Value

ACTUAL Value

VARIANCE

Favourable/Unfavourable

Utilties

$18,850

$20,910

$2,060

U

Maintenance

$60,700

$57,500

$3,200

F

Supplies

$10,500

$11,700

$1,200

U

Indirect Labour

$113,700

$117,200

$3,500

U

Depreciation

$67,800

$69,500

$1,700

U

Total

$271,550

$276,810

$5,260

U

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