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 26,000 machine-hours and produced 15,000 units. The company had originally planned to work 30,000 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 $20,600 plus $0.10 per machine-hour $ 24,200 Maintenance $40,000 plus $1.60 per machine-hour $ 78,100 Supplies $0.30 per machine-hour $ 8,400 Indirect labor $130,000 plus $0.70 per machine-hour $ 149,600 Depreciation $70,000 $ 71,500

Explanation / Answer

Calculate activity variance :

Calculate spending variance :

Plannin budget Flexible budget activity variance Utilities 23600 23200 400 F Maintenance 88000 81600 6400 F Supplies 9000 7800 1200 F Indirect labour 151000 148200 2800 F Depreciation 70000 70000 None Total 341600 330800 10800 F

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