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 15,000 machine-hours and produced 9,000 units. The company had originally planned to work 17,000 machine-hours during March.

Required 1

Calculate 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.)

Required 2

Calculate 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.)

Thanks for your help!

Cost Formula Actual Cost in March Utilities $16,500 plus $0.14 per machine-hour $ 20,680 Maintenance $38,700 plus $1.40 per machine-hour $ 56,300 Supplies $0.80 per machine-hour $ 13,400 Indirect labor $94,500 plus $1.50 per machine-hour $ 120,900 Depreciation $68,400 $ 70,100

Explanation / Answer

1) Activity variance :

F

2) Spending variance :

FAB Corporation Activity Variances For the Month Ended March 31 Utilities 280 F Maintenance 2800 F Supplies 1600 F Indirect labor 3000 F Depreciation 0 None Total 7680

F

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