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 Utilities $16,100 plus $0.14 per machine-hour Maintenance $38,300 plus $1.50 per machine-hour Supplies $0.60 per machine-hour Indirect labor $94,400 plus $2.10 per machine-hour Depreciation $68,400 Actual Coutin March $ 21,260 $ 68.100 $ 14,200 $145, 700 $ 70,100 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. Prepare a flexible budget for March 2. Prepare a report showing the spending variances for March. Complete this question by entering your answers in the tabs below.

Answer 1

Solution:

1.) Flexible budget

FAB Corporation

Flexible Budget

For the Month Ended March 31

Machine hours =22,000

Utilities (16,100 +$ 0.14 × 22,000)	$19,180
Maintenance (38,300+ $1.50 × 22,000)	$71,300
Supplies (0.60 × 22,000)	$13,200
Indirect labor (94,400 +$2.10 × 22,000)	$140,600
Depreciation	$68,400
Total	$312,680

2.) Spending variance

FAB Corporation

Spending variance

For the Month Ended March 31

	Spending variance		Actual Results (given)	Flexible Budget (as calculate in part 1)
Utilities	$2,080	U	$21,260	$19,180
Maintenance	$3,200	F	$68,100	$71,300
Supplies	$1,000	U	$14,200	$13,200
Indirect labor	$5,100	U	$145,700	$140,600
Depreciation	$1,700	U	$70,100	$68,400
Total	$6,680	U	$319,360	$312,680