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: Utilities Maintenance Supplies Indirect labor Depreciation Cost Formula $16,300 plus $0.12 per machine-hour $38,600 plus $1.50 per machine-hour $0.40 per machine-hour $94,300 plus $1.70 per machine-hour $67,500 Actual Cost in March $ 19,900 $ 54,900 $ 5,800 $ 120,700 $ 69,200 During March, the company worked 13,000 machine-hours and produced 7,000 units. The company had originally planned to work 15,000 machine-hours during March. Required: 1. Calculate the activity variances for March. 2. Calculate the spending variances for March.

Answer 1

Answer is given below

FAB CORPORATION Activity Variances For the Month Ended March 31 Planning Budget Flexible Budget Variance Machine hours Cost Utilities Maintenance Supplies Indirect Labor 15,000 13,000 2,000 F $18,100 $61,100 $6,000 $119,800 $67,500 $287,500 $17,860 $240 F $3,000 F $800 F $3,400 F $0 F $9,440 F $58,100 $5,200 $116,400 $67,500 $278,060 Depreciation Total FAB CORPORATION Spending Variances For the Month Ended March 31 Flexible Actual Results Budget 13,000 13,000 Variance Machine hours 0 Cost $19,900 $54,900 $5,800 $120,700 $69,200 $283,500 $17,860 $58,100 $5,200 $116,400 $67,500 $278,060 $2,040 U -$3,200 F $600 U $4,300 U $1,700 U $5,440 U Utilities Maintenance Supplies Indirect Labor Depreciation Total