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 s 28,758 61,1e8 16,90e $132,98e Cost Formula Utilities Maintenance Supplies Indirect labor $94,08 plus $2.00 per machine-hour Depreciation $16,188 plus $e.15 per machine-hour $38,888 plus $1.58 per machine-hour $0.90 per machine-hour $68,300 During March, the company worked 17,000 machine-hours and produced 11,000 units. The company had orlginally planned to work 19,000 machine-hours during March. Required 1. Calculate the activity varlances for March. 2 Calculate the spending varlances for March.

Explanation / Answer

Planning budget Flexible budget Activity variances Utilities 18950 18650 300 F Maintenance 67300 64300 3000 F Supplies 17100 15300 1800 F Indirect labor 132000 128000 4000 F Depreciation 68300 68300 0 None Total expenses 303650 294550 9100 F Actual Flexible budget Spending variances Utilities 20750 18650 2100 U Maintenance 61100 64300 3200 F Supplies 16900 15300 1600 U Indirect labor 132900 128000 4900 U Depreciation 70000 68300 1700 U Total expenses 301650 294550 7100 U

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