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: Actual Cost in March $ 21,380 68,300 $ 7,000 $116,700 $ 69,900 Cost Formula Utilities Maintenance $38,500 plus $2.00 per machine-hour Supplies Indirect labor $94,200 plus $1.20 per machine-hour Depreciation $68,200 $16,700 plus $0.16 per machine-hour $0.40 per machine-hour During March, the company worked 16,000 machine-hours and produced 10,000 units. The company had originally planned to work 18,000 machine-hours during March. Required 1. Prepare a flexible budget 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 Flexible Budget For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total 2. Prepare a 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.) FAB Corporation Spending Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total

Explanation / Answer

Prepare flexible budget :

Calculate spending variance

Utilities (16000*.16+16700) 19260 Maintenance (16000*2+38500) 70500 Supplies (16000*.40) 6400 Indirect labour (16000*1.2+94200) 113400 Depreciation 68200 Total 277760

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