Question

Problem 9-23 Flexible Budgets and Spending Variances

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	$16,000 plus $0.15 per machine-hour	$	20,650
Maintenance	$38,800 plus $1.20 per machine-hour	$	55,400
Supplies	$0.70 per machine-hour	$	13,100
Indirect labor	$94,100 plus $1.50 per machine-hour	$	123,500
Depreciation	$67,800	$	69,500

During March, the company worked 17,000 machine-hours and produced 11,000 units. The company had originally planned to work 19,000 machine-hours during March.

Required:

1. Prepare a flexible budget for March.

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

Answer 1

1) Flexible budget

Utilities (17000*.15+16000)	18550
Maintenance (17000*1.2+38800)	59200
Supplies	11900
Indirect labor	119600
Depreciation	67800
Total	277050

2) Spending variance

Utilities (18550-20650)	2100 U
Maintenance (59200-55400)	3800 F
Supplies	1200 U
Indirect labor	3900 U
Depreciation	1700 U
Total	5100 U