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	$16,900 plus $0.16 per machine-hour	$	22,380
Maintenance	$38,500 plus $2.00 per machine-hour	$	78,300
Supplies	$0.90 per machine-hour	$	20,500
Indirect labor	$94,800 plus $1.60 per machine-hour	$	132,500
Depreciation	$68,100	$	69,800

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.

Required:

1. Prepare a flexible budget for March.

2. Prepare a report showing the spending variances for March.

Answer 1

a) Flexible budget

	Flexible budget
Utilities	$20260
Maintenance	$80500
Supplies	$18900
Indirect labor	$128400
Depreciation	$68100
Total	316160

b) Flexible budget

	Spending variance
Utilities	2120 U
Maintenance	2200 F
Supplies	1600 U
Indirect labor	4100 U
Depreciation	1700 U
Total	7320 U