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: Actual Cost in March Cost Formula $16,200 plus $0.16 per machine -hour $38,600 plus $2.00 per Utilities 21,040 70,400 13,100 128,100 69, 200 Maintenance machine-hour Supplies Indirect labor Depreciation $67,500 $0.70 per machine-hour $94,900 plus $1.70 per machine-hour 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. Calculate the activity variances for March 2. Calculate the spending variances for March

Answer 1

Answer-1)-

FAB Corporation
Activity Variance for the month of March
Particulars	Planning Budget	Flexible Budget	Difference	Remark
	$	$	$
Utilities	16200+(19000 machine hours*0.16 per hour)=19240	16200+(17000 machine hours*0.16 per hour)=18920	320	Favorable
Maintenance	38600+(19000 machine hours*2.00 per hour)=76600	38600+(17000 machine hours*2.00 per hour)=72600	4000	Favorable
Supplies	19000 machine hours*0.70 per hour=13300	17000 machine hours*0.70 per hour=11900	1400	Favorable
Indirect Labor	94900+(19000 machine hours*1.70 per hour)=127200	94900+(17000 machine hours*1.70 per hour)=123800	3400	Favorable
Depreciation	67500	67500	0	None
Total	303840	294720	9120	Favorable

2)-

FAB Corporation
Spending variance for the month of March
Particulars	Flexible Budget	Actual	Difference	Remark
	$	$	$
Utilities	16200+(17000 machine hours*0.16 per hour)=18920	21040	-2120	Unfavorable
Maintenance	38600+(17000 machine hours*2.00 per hour)=72600	70400	2200	Favorable
Supplies	17000 machine hours*0.70 per hour=11900	13100	-1200	Unfavorable
Indirect Labor	94900+(17000 machine hours*1.70 per hour)=123800	128100	-4300	Unfavorable
Depreciation	67500	69200	-1700	Unfavorable
Total	294720	301840	-7120	Unfavorable