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 Cost Formula March $16,800 plus $0.18 per machine-hour $38,800 plus $1.80 per machine-hour $0.80 per machine-hour $94,100 plus $1.40 per machine-hour $68,400 $22,200 $68,600 $15,800 $123,000 $70,100 Utilities Maintenance Supplies Indirect labor Depreciation During March, the company worked 18,000 machine-hours and produced 12,000 units. The company had originally planned to work 20,000 machine-hours during March.

Answer 1

1) Activity variance

Utilities (2000*.18)	360 F
Maintenance	3600 F
Supplies	1600 F
Indirect labor (2000*1.4)	2800 F
Depreciation	0 None
Total	8360 F

2) Spending variance

Utilities	2160 U
Maintenance	2600 F
Supplies	1400 U
Indirect labor	3700 U
Depreciation	1700 U
Total	6360 U