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 March $ 20,760 Cost Formula Utilities $16,200 plus $0.12 per machine-hour $38,500 plus $2.00 per Maintenance machine-hour Supplies $0.60 per machine-hour Indirect $94,000 plus $1.70 per labor machine-hour Depreciation $67,500 $ 78,300 $13,600 $ 134,000 $ 69,200 During March, the company worked 21,000 machine-hours and produced 15,000 units The company had originally planned to work 23,000 machine-hours during March

Answer 1

1) Activity variance

Utilities (2000*.12)	240 F
Maintenance (2000*2)	4000 F
Supplies (2000*.60)	1200 F
Indirect labor (2000*1.7)	3400 F
Depreciation	0 None
Total	8840 F

2) Spending variance

Utilities (21000*.12+16200)-20760	2040 U
Maintenance (21000*2+38500)-78300	2200 F
Supplies (21000*.60)-13600	1000 U
Indirect labor (21000*1.7+94000)-134000	4300 U
Depreciation	1700 U
Total	6840 U