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	$16,400 plus $0.14 per machine-hour	$	21,000
Maintenance	$39,000 plus $1.50 per machine-hour	$	62,800
Supplies	$0.50 per machine-hour	$	9,800
Indirect labor	$94,000 plus $1.30 per machine-hour	$	120,900
Depreciation	$67,600	$	69,300

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.

FAB Corporation Activity Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total

2. Calculate the spending variances for March.

Answer 1

1) Activity variance

Utilities (2000*.14)	280 F
Maintenance (2000*1.50)	3000 F
Supplies (2000*.50)	1000 F
Indirect labor (2000*1.3)	2600 F
Depreciation	0 None
Total	6880 F

2) Spending variance

Utilities	2080 U
Maintenance	3200 F
Supplies	800 U
Indirect labor	3500 U
Depreciation	1700 U
Total	4880 U