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 $ 22,150 $ 74,700 $ 17,300 $132,900 $ 69,800 Cost Formula Utilities Maintenance Supplies Indirect labor Depreciation $16,600 plus $0.15 per machine-hour $38,400 plus $1.70 per machine-hour $0.70 per machine-hour $94,500 plus $1.50 per machine-hour $68,100 During March, the company worked 23,000 machine-hours and produced 17,000 units. The company hacd originally planned to work 25,000 machine-hours during March.

Explanation / Answer

1 Flexible budget Utilities 20050 =16600+(23000*0.15) Maintenance 77500 =38400+(23000*1.7) Supplies 16100 =23000*0.7 Indirect labor 129000 =94500+(23000*1.5) Depeciation 68100 Total 310750 2 Spending variances Utilities 2100 U Maintenance 2800 F Supplies 1200 U Indirect labor 3900 U Depeciation 1700 U Total 6100

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