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:

Calculate the spending variances for March.

Cost Formula Actual Cost in March Utilities $16,500 plus $0.13 per machine-hour $ 21,290 Maintenance $38,100 plus $1.60 per machine-hour $ 68,700 Supplies $0.90 per machine-hour $ 20,500 Indirect labor $94,200 plus $1.50 per machine-hour $ 129,600 Depreciation $68,400 $ 70,100

Explanation / Answer

Ans. FAB Corporation Spending Variance For the month Ended March 31 Utilities 2060 U Maintenance 3000 F Supplies 1600 U Indirect labor 3900 U Depreciation 1700 U Total 6260 U Actual Spending Flexible Results Variance Budget Machine hours 21000 21000 Utilities 21290 2060 19230 Maintenance 68700 -3000 71700 Supplies 20500 1600 18900 Indirect labor 129600 3900 125700 Depreciation 70100 1700 68400 Total 310190 6260 303930 *Calculations for Flexible budget: *The flexible budget is prepared on the basis of Actual result units. Flexible budget Utilities 16500+(0.13*21000) Maintenance 38100+(1.60*21000) Supplies 21000*0.90 Indirect labor 94200+(1.50*21000) Depreciation 68400 Spending variance   =    Actual results - Flexible budget. *Increase in Expenses from Flexible to Actual    =   Unfavorable. *Decrease in Expenses from Flexible to Actual    =   Favorable.

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