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 $16,800 + $0.20 per machine-hour $38,600 + $1.50 per machine-hour $0.70 per machine-hour $94,900 + $1.30 per machine-hour $67,800 Actual Cost in March $ 21,600 $ 54,900 $ 10,300 $115,300 $ 69,500 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. Prepare a flexible budget for March. 2. Prepare a report showing the spending variances for March.

Answer 1

1) Flexible budget

	Flexible budget
Utilities (13000*.20+16800)	19400
Maintenance (13000*1.5+38600)	58100
Supplies (13000*.70)	9100
Indirect labor (13000*1.3+94900)	111800
Depreciation	67800
Total	266200

2) Spending variance

	Flexible budget	Actual	Spending variance
Utilities (13000*.20+16800)	19400	21600	2200 U
Maintenance (13000*1.5+38600)	58100	54900	3200 F
Supplies (13000*.70)	9100	10300	1200 U
Indirect labor (13000*1.3+94900)	111800	115300	3500 U
Depreciation	67800	69500	1700 U
Total	266200	271600	5400 U