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 $16,200 plus $0.14 per machine-hour 21,220 Maintenance $39,000 plus $1.90 per machine-hour 76,500 $ 6,700 Indirect labor $94,600 plus $1.70 per machine-hour$134,600 $ 69,900 Cost Formula Utilities Supplies Depreciation $68,200 $0.30 per machine-hour During March, the company worked 21,000 machine-hours and produced 15,000 units. The company had originally planned to work 23,000 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 effecti.e., zero variance). Input all amounts as positive values.) FAB Corporation Flexible Budget For the Month Ended March 31 Utilities S 19,140 Supplies Indirect labor Total 2. Prepare a 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.) Spending Variances For the Month Ended March 31 Utilities Supplies Indirect labor Total

Explanation / Answer

1. Flexible Budget

Particulars

Amount

Calculations

Utilities

19,140

16,200 + $0.14 x 21,000 hours = 19,140

Maintenance

78,900

39,000 + $1.90 x 21,000 hours = 78,900

Supplies

6,300

$0.30 per hour x 21,000 hours = 6,300

Indirect Labor

130,300

94,600 + 1.70 x 21,000 hours = 130,300

Depreciation

68,200

Given in question

Total

302,840

2. Variances

Particulars

Variance (Flexible - Actual)

Calculation

Utilities

$2,080 U

19,140 – 21,220 = $2,080 U

Maintenance

2,400 F

78,900 – 76,500 = 2,400 F

Supplies

400 U

6,300 – 6,700 = 400 U

Indirect Labor

4,300 U

130,300 - 134,600 = 4,300 U

Depreciation

1,700 U

68,200 – 69,900 = 1,700 U

Total

6080 U

Particulars

Amount

Calculations

Utilities

19,140

16,200 + $0.14 x 21,000 hours = 19,140

Maintenance

78,900

39,000 + $1.90 x 21,000 hours = 78,900

Supplies

6,300

$0.30 per hour x 21,000 hours = 6,300

Indirect Labor

130,300

94,600 + 1.70 x 21,000 hours = 130,300

Depreciation

68,200

Given in question

Total

302,840

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