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 22,000 machine-hours and produced 16,000 units. The company had originally planned to work 24,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Cost Formula Actual Cost in March Utilities $17,000 plus $0.15 per machine-hour $ 22,400 Maintenance $38,600 plus $1.70 per machine-hour $ 73,200 Supplies $0.70 per machine-hour $ 16,600 Indirect labor $94,500 plus $2.10 per machine-hour $ 145,800 Depreciation $68,500 $ 70,200 Safari File Edt View History Bookmarks window Help E@ 4>) Sun 10:32 AM Janee a E Chapter 9 Hamework proble ms a ad Hcp Save&Exit; 3 You have ust been hired by FAB Corporation the manufacturer of a evolutionary new garage door opening de ice. The president has asked at you rev e the company's costing system and do hat you can to help us get better cantral a our manufacturing Dverhead Easts au find t at the company has never used n flexible budget and you suggest th t preparing suci a bucget would ban excellent first step n Dvemend clanning and control. After r ch effort anc nelysis, you determine: the fallowing cost formulas d gathered the following actual cost dat for March: t0 otual Cost Cost Forrvala $17,000 plus0.15 per nachine-hour $1,600 plus2.70 per nach. e-hour 30.70 per aach hour 994, 500 plus 2.10 per nach, e-hour 5, 500 8upplie $ 145,80 Depreciation Pint During March, the campeny workec 22,000 rmachine-hours nd produced 16.0 units. The corp my hac ariginal planned to work 24 C00 mechine hours during March. 1. Calu ate the activity veriances for Merch. 2. Calculate the spending varlances for March, Refe ences Complete this question by entering your answers in the tabs below Required 1 Hequired 2 Calf late tt spending variances far March. Indicate the 4m et f4ach var arn" b selectin F for favorable, U for unfavorable and None for n er eet i. 7Rro variancs In ut al ama' rts as osit ve vali.K Mc Graw Hill

Explanation / Answer

1. Activity Variances for March : $ 9,300 Favorable

2. Spending Variances for March : $ 7,300 Unfavorable

Actuals Spending Variances Flexible Budget Activity Variances Planning Budget Activity Level 22,000 machine hours 22,000 machine hours 24,000 machine hours $ $ $ $ $ Utilities 22,400 2,100 U 20,300 300 F 20,600 Maintenance 73,200 2,800 F 76,000 3,400 F 79,400 Supplies 16,600 1,200 U 15,400 1,400 F 16,800 Indirect Labor 145,800 5,100 U 140,700 4,200 F 144,900 Depreciation 70,200 1,700 U 68,500 No Effect 68,500 Total 328,200 7,300 U 320,900 9,300 F 330,200

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