Problem 9-20 Activity and Spending Variances [LO9-1, LO9-2, LO9-3] You have just

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Problem 9-20 Activity and Spending Variances [LO9-1, LO9-2, LO9-3] 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: Cost Formula Actual Cost in March Utilities $16,500 plus $0.21 per machine-hour $ 22,080 Maintenance $39,000 plus $1.30 per machine-hour $ 56,200 Supplies $0.90 per machine-hour $ 16,000 Indirect labor $94,600 plus $1.80 per machine-hour $ 127,900 Depreciation $67,900 $ 69,600 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. Calculate the activity variances for March. 2. Calculate the spending variances for March.

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 $ 22,080 $ 56,200 16,000 $127,900 $69,600 Cost Formula Utilities Maintenance Supplies Indirect labor $94,600 plus $1.80 per machine-hour Depreciation $67,900 $16,500 plus $0.21 per machine-hour $39,000 plus $1.30 per machine-hour $0.90 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. Calculate the activity variances for March 2. Calculate the spending variances for March.

Explanation / Answer

1 Planning budget Activity variances Flexible budget Utilities 20280 420 F 19860 Maintenance 62400 2600 F 59800 Supplies 16200 1800 F 14400 Indirect labor 127000 3600 F 123400 Depreciation 67900 0 None 67900 Total 293780 8420 F 285360 2 Actual Spending variances Flexible budget Utilities 22080 2220 U 19860 Maintenance 56200 3600 F 59800 Supplies 16000 1600 U 14400 Indirect labor 127900 4500 U 123400 Depreciation 69600 1700 U 67900 Total 291780 6420 U 285360

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