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: Cost Formula Actual Cost in March Utilities $16,200 + $0.17 per machine-hour $ 20,550 Maintenance $38,700 + $1.80 per machine-hour $ 59,500 Supplies $0.60 per machine-hour $ 8,800 Indirect labor $94,300 + $1.40 per machine-hour $ 116,200 Depreciation $68,400 $ 70,100 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.

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 $16,200 + $0.17 per machine-hour Maintenance $38,700 + $1.80 per machine-hour Supplies $0.60 per machine-hour Indirect labor $94,300 + $1.40 per machine-hour Depreciation $68,400 Actual Cost in March $ 20,550 $ 59,500 $ 8,800 $116, 200 $ 70, 100 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

Utilities (13000*.17+16200)	18410
Maintenance (13000*1.8+38700)	62100
Supplies (13000*.60)	7800
Indirect labor (13000*1.4+94300)	112500
Depreciation	68400
Total	269210

2) Spending budget

	Flexible budget	Actual	Spending variance
Utilities	18410	20550	2140 U
Maintenance	62100	59500	2600 F
Supplies	7800	8800	1000 U
Indirect labor	112500	116200	3700 U
Depreciation	68400	70100	1700 U
Total	269210	275150	5940 U