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 revievw 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 at you review the company's costing system and “do what y ou can to After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March: Actual Cost in March $ 21,100 $ 57,700 $ 14,200 $122,800 $ 69,200 Cost Formula Utilities Maintenance Supplies Indirect labor Depreciation $67,500 $16,600 plus $0.15 per machine-hour $38,700 plus $1.40 per machine-hour 0.80 per machine-hour $94,900 plus $1.50 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

Explanation / Answer

1) FAB Corporation Flexible budget For the month ended March 31 utilities $     19,000 Maintenance $     61,100 Supplies $     12,800 Indirect Labour $ 1,18,900 Depreciation $     67,500 Total $ 2,79,300 2) FAB Corporation Spending Variance For the month ended March 31 i utilities $       2,100 U Maintenance $       3,400 F Supplies $       1,400 U Indirect Labour $       3,900 U Depreciation $       1,700 U Total Working: 1) Flexible budget means budget which changes as per changes in volume.In beginning we estimate all figures at some volume. But, Actual olume may differ from beginning estimated volume. So, budget that are adjusted as per changes in volume is flexible budget. In beginning Budget was based on Machine hours.So here volume is Machine hours. utilities: Variable $         0.15 x 16000 = $         2,400 Fixed = $       16,600 Total = $       19,000 Maintenance: Variable $         1.40 x 16000 = $       22,400 Fixed = $       38,700 Total = $       61,100 Supplies: Variable $         0.80 x 16000 = $       12,800 Fixed = Total = $       12,800 Indirect Labour: Variable $         1.50 x 16000 = $       24,000 Fixed = $       94,900 Total = $   1,18,900 Depreciation: Variable $ 0   x 16000 = $ 0   Fixed = $       67,500 Total = $       67,500 2) Variance is the difference between budgeted and actual amount. Since all here are expenses, if actual expenses are less than budgeted it will be favorable otherwise not. Budgeted Actual Difference a b a-b utilities $     19,000 $           21,100 $        -2,100 Maintenance $     61,100 $           57,700 $         3,400 Supplies $     12,800 $           14,200 $        -1,400 Indirect Labour $ 1,18,900 $       1,22,800 $        -3,900 Depreciation $     67,500 $           69,200 $        -1,700

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