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 21,390 $ $16,700 plus $0.17 per machine-hour $38,100 plus $2.00 per machine-hour $0.30 per machine-hour $94,000 plus $1.10 per machine-hour $68,300 $ Utilities 65,900 4,900 113,600 $ Maintenance Supplies Indirect labor Depreciation 70,000 During March, the company worked 15,000 machine-hours and produced 9,000 units. The company had originally planned to work 17,000 machine-hours during March. Required: 1. Complete the report showing 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

Answer 1

Ans. 1	FAB CORPORATION
	Activity Variances
	For the Month Ended March 31
		Flexible Budget	Activity variance		Planning Budget
	Machine hours	15000			17000
	Utilities	$19,250	$340	F	$19,590
	Maintenance	$68,100	$4,000	F	$72,100
	Supplies	$4,500	$600	F	$5,100
	Indirect labor	$110,500	$2,200	F	$112,700
	Depreciation	$68,300	$0	None	$68,300
	Total expenses	$270,650	$7,140	F	$277,790
	Activity variance =   Flexible budget - Planning budget
	*Increase in expenses from planninng budget to flexible budget =   Unfavorable.
	*Decrease in expenses from planninng budget to flexible budget =   Favorable.
Ans. 2	FAB CORPORATION
	Spending Variances
	For the Month Ended March 31
		Actual results	Activity variance		Flexible Budget
	Machine hours	20000			15000
	Utilities	$21,390	$2,140	U	$19,250
	Maintenance	$65,900	$2,200	F	$68,100
	Supplies	$4,900	$400	U	$4,500
	Indirect labor	$113,600	$3,100	U	$110,500
	Depreciation	$70,000	$1,700	U	$68,300
	Total expenses	$275,790	$5,140	U	$270,650
	Spending variance   =   Actual results - Flexible budget
	*Increase in expenses from flexible budget to actual results =   Unfavorable.
	*Decrease in expenses from flexible budget to actual results =   Favorable.
	* Calculations for Flexible budget & Planning budget:
		Flexible Budget	Planning Budget
	Machine hours	15000	17000
	Utilities	$16,700 + ($0.17 * 15000)	$16,700 + ($0.17 * 17000)
	Maintenance	$38,100 + ($2 * 15000)	$38,100 + ($2 * 17000)
	Supplies	$0.30 * 15,000	$0.30 * 17,000
	Indirect labor	$94,000 + ($1.10 * 15000)	$94,000 + ($1.10 * 17000)
	Depreciation	$68,300	$68,300
	*Flexible budget is prepared on the basis of actual units (machine hours).
	*Fixed expenses remain same as planning budget.