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	$16,900 plus $0.13 per machine-hour	$	21,300
Maintenance	$38,200 plus $1.50 per machine-hour	$	62,000
Supplies	$0.80 per machine-hour	$	15,800
Indirect labor	$94,600 plus $2.00 per machine-hour	$	135,500
Depreciation	$68,300	$	70,000

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.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Required 1 Required 2 Calculate the activity variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) FAB Corporation Activity Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total Required 1 Required 2 >

Answer 1

1) Activity variance

Utilities	260 F
Maintenance	3000 F
Supplies	1600 F
Indirect labor	4000 F
Depreciation	0 None
Total	8860 F

2) Spending variance

Utilities	2060 U
Maintenance	3200 F
Supplies	1400 U
Indirect labor	4900 U
Depreciation	1700 U
Total	6860 U