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: Cost Formula Actual Cost in March Utilities $16,200 plus $0.19 per machine-hour $ 21,990 Maintenance $38,200 plus $1.60 per machine-hour $ 65,600 Supplies $0.80 per machine-hour $ 16,600 Indirect labor $94,300 plus $1.30 per machine-hour $ 122,500 Depreciation $67,700 $ 69,400 During March, the company worked 19,000 machine-hours and produced 13,000 units. The company had originally planned to work 21,000 machine-hours during March. Required: 1. Calculate the activity variances for March. 2. Calculate the spending variances for March.

Explanation / Answer

1 Planning budget Flexible budget Activity variances Utilities 20190 19810 380 F Maintenance 71800 68600 3200 F Supplies 16800 15200 1600 F Indirect labor 121600 119000 2600 F Depreciation 67700 67700 0 None Total expenses 298090 290310 7780 F 2 Actual Flexible budget Spending variances Utilities 21990 19810 2180 U Maintenance 65600 68600 3000 F Supplies 16600 15200 1400 U Indirect labor 122500 119000 3500 U Depreciation 69400 67700 1700 U Total expenses 296090 290310 5780 U

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