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 + $0.13 per machine-hour	$	21,320
Maintenance	$38,300 + $1.30 per machine-hour	$	63,300
Supplies	$0.50 per machine-hour	$	11,800
Indirect labor	$94,700 + $1.80 per machine-hour	$	138,800
Depreciation	$67,900	$	69,600

During March, the company worked 22,000 machine-hours and produced 16,000 units. The company had originally planned to work 24,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Answer 1

FAB Corporation Activity Variances For the month ending March 31 Machine hours (9) Utilities ($16400 + $0.139) Maintenance ( $38300 + $1.300) Supplies ($0.500) Indirect Labour ($94700 + $1.809) Depreciation ($67900) Total Flexible Planning Activity Budget Budget Variances 22000 24000 1926019520 260 F 66900 69500 2600 F 11000 12000 1000 F 134300 137900 3600 F 67900 67900 0 None 299360 306820 7460 F Spending Variances Machine hours (9) Utilities ($16400 + $0.13) Maintenance ($38300 + $1.300) Supplies ($0.500) Indirect Labour ($94700 + $1.809) Depreciation ($67900) Total Actual Results 22000 21320 63300 11800 138800 69600 304820 Flexible Activity Budget Variances 22000 19260 2060 U 66900 3600 F 11000 800 U 134300 4500U 67900 1700 U 299360 5460U