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:

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.

Required:

1. Complete the report showing the activity 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.)

2. Complete the 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.)

Cost Formula Actual Cost in March Utilities $16,700 plus $0.17 per machine-hour $ 22,410 Maintenance $38,300 plus $1.20 per machine-hour $ 59,700 Supplies $0.40 per machine-hour $ 9,000 Indirect labor $94,800 plus $1.70 per machine-hour $ 134,800 Depreciation $68,000 $ 69,700

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.

Required:

1. Complete the report showing the activity 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 Activity Variances For the Month Ended March 31 Utilities F Maintenance F Supplies F Indirect labor F Depreciation F Total None

2. Complete the 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.)

Explanation / Answer

1) Activity variance :

2) Spending variance :

FAB Corporation Activity Variances For the Month Ended March 31 Utilities 340 F Maintenance 2400 F Supplies 800 F Indirect labor 3400 F Depreciation 0 None Total 6940 F

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