Question

Problem 9-19 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 Utilities $16,700 plus $0.14 per machine-hour Maintenance $38,800 plus $1.90 per machine-hour Supplies $0.50 per machine-hour Indirect labor $94,900 plus $1.40 per machine-hour Depreciation $67,700 Actual Cost in March $ 21,020 $ 66,800 $ 8,800 $121,000 $ 69,400 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.

Answer 1

1
	Planning budget	Flexible budget	Activity variances
Utilities	19220	18940	280	F
Maintenance	73000	69200	3800	F
Supplies	9000	8000	1000	F
Indirect labor	120100	117300	2800	F
Depreciation	67700	67700	0	None
Total	289020	281140	7880	F
2
	Actual cost	Flexible budget	Spending variances
Utilities	21020	18940	2080	U
Maintenance	66800	69200	2400	F
Supplies	8800	8000	800	U
Indirect labor	121000	117300	3700	U
Depreciation	69400	67700	1700	U
Total	287020	281140	5880	U