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	$16,100 + $0.20 per machine-hour	$	21,900
Maintenance	$38,000 + $1.40 per machine-hour	$	59,800
Supplies	$0.80 per machine-hour	$	15,800
Indirect labor	$94,100 + $2.00 per machine-hour	$	135,000
Depreciation	$67,800	$	69,500

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.

Complete this question by entering your answers in the tabs below.

• 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

Calculate the spending 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 Spending Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total

Answer 1

Answer

• Working

							Actual result	Flexible Budget	Planning Budget
Machine hours							18,000	18,000	20,000
Utilities		$      16,100.00	+ (	$      0.20	18,000	)	$               21,900.00	$             19,700.00	$          20,100.00
Maintenance		$      38,000.00	+	$      1.40	18,000	)	$               59,800.00	$             63,200.00	$          66,000.00
Supplies		$                      -	+	$      0.80	18,000	)	$               15,800.00	$             14,400.00	$          16,000.00
Indirect Labor		$      94,100.00	+	$      2.00	18,000	)	$            135,000.00	$           130,100.00	$        134,100.00
Depreciation		$      67,800.00	)	$           -	18,000		$               69,500.00	$             67,800.00	$          67,800.00
Total Expenses							$            302,000.00	$           295,200.00	$        304,000.00

• [1] Activity Variance: Difference between Flexible and Static Budget

	Activity Variance
Utilities	$                400.00	Favourable
Maintenance	$            2,800.00	Favourable
Supplies	$            1,600.00	Favourable
Indirect Labor	$            4,000.00	Favourable
Depreciation	$                         -	None
Total Expenses	$            8,800.00	Favourable

• [2] Spending Variance: Difference between Flexible and Actual data

	Spending Variance
Utilities	$         2,200.00	Unfavourable
Maintenance	$         3,400.00	Favourable
Supplies	$         1,400.00	Unfavourable
Indirect Labor	$         4,900.00	Unfavourable
Depreciation	$         1,700.00	Unfavourable
Total Expenses	$         6,800.00	Unfavourable