Question

Problem 9-23 Flexible Budgets and Spending Variances [LO9-1, LO9-2]

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	$16,000 plus $0.20 per machine-hour	$	22,200
Maintenance	$38,900 plus $1.90 per machine-hour	$	74,500
Supplies	$0.30 per machine-hour	$	6,400
Indirect labor	$94,600 plus $1.60 per machine-hour	$	130,700
Depreciation	$67,800	$	69,500

During March, the company worked 20,000 machine-hours and produced 14,000 units. The company had originally planned to work 22,000 machine-hours during March.

Required:

1. Prepare a flexible budget for March.

2. Prepare a report showing the spending variances for March.

Answer 1

Flexible budget

Utilities (20000*.2+16000)	20000
Maintenance (20000*1.9+38900)	76900
Supplies	6000
Indirect labor (20000*1.6+94600)	126600
Depreciation	67800
Total	297300

Spending variance

Utilities (20000-22200)	2200 U
Maintenance	2400 F
Supplies	400 U
Indirect labor	4100 U
Depreciation	1700 U
Total	6000 U