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 $16,500 plus $0.13 per machine-hour $ 21,290 Maintenance $38,000 plus $1.50 per machine-hour $ 66,300 Supplies $0.50 per machine-hour $ 11,300 Indirect labor $94,700 plus $1.30 per machine-hour $ 125,500 Depreciation $67,900 $ 69,600 During March, the company worked 21,000 machine-hours and produced 15,000 units. The company had originally planned to work 23,000 machine-hours during March. . Complete the report showing the activity variances for March 2. Complete the report showing the spending variances for March.

Explanation / Answer

Answer

1.

The report showing the activity variances for March:

2.

The report showing the spending variances for March:

Particulars Flexible Budget Planning Budget Activity
Variances Machine-hours 21000 23000 Utilities ($16,500 + $0.13) $19230 $19490 $260 F Maintenance ($38,000 + $1.50) $69500 $72500 $3000 F Supplies ($0.50) $10500 $11500 $1000 F Indirect labor ($94,700 + $1.30) $122000 $124600 $2600 F Depreciation ($67,900) $67900 $67900 $0 F Total $289130 $295990 $6860 F

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