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 $20,340 $64,600 13,400 $120,800 $70,100 Cost Formula Utilities Maintenance Supplies Indirect labor $94,400 plus $1.50 per machine-hour Depreciation $68,400 $16,500 plus $0.12 per machine-hour $38,500 plus $1.90 per machine-hour $0.80 per machine-hour 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 2. Calculate the spending variances for March

Explanation / Answer

working No. of machine hours 17000 15000 Fixed cost F Variable cost V Static Budget S=F+(V*m) Flexible Budget B=F+(V*N) Actual A Activity variance -S-B Spending variance A-B Utilities $16,500 0.12 18540 18300 20340 240 F 2040 U Maintenance 38500 1.9 70800 67000 64600 3800 F 2400 F Supplies 0.8 13600 12000 13400 1600 F 1400 U Indirect Labor 94400 1.5 119900 116900 120800 3000 F 3900 U Depreciation 68400 0 68400 68400 70100 0 None 1700 U ans 1 activity Variance Activity variance -S-B Utilities 240 F Maintenance 3800 F Supplies 1600 F Indirect Labor 3000 F Depreciation 0 None ans 2 Spending variance Spending variance A-B Utilities 2040 U Maintenance 2400 F Supplies 1400 U Indirect Labor 3900 U Depreciation 1700 U If any doubt please comment

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