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 Utilities $17,000 plus $0.21 per machine-hour $38,100 plus $2.10 per machine-hour 23,840 82,300 $ 11,800 Maintenance Supplies Indirect labor $0.50 per machine-hour $94,500 plus $1.20 per machine-hour $68,000 $124,200 $69,700 Depreciation 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

Ans:

Activity Variance

Particulars	Planning Budget	Flexible Budget	Activity Variance
Machine Hours (q)	24000	22000
Utilities 17000+(0.21*q)	22040	21400	640	Favourable
Maintenance 38100+(2.10*q)	88500	84300	4200	Favourable
Supplies (0.50*q)	12000	11000	1000	Favourable
Indirect Labour 94500+(1.20*q)	123300	120900	2400	Favourable
Depreciation	68000	68000	0	Favourable
Total	313840	305600	8340	Favourable

Spending Variance

Particulars	Flexible Budget	Actual Results	Spending Variance
Machine Hours (q)	22000	22000
Utilities 17000+(0.21*q)	21400	23840	-2440	Unfavourable
Maintenance 38100+(2.10*q)	84300	82300	2000	Favourable
Supplies (0.50*q)	11000	11800	-800	Unfavourable
Indirect Labour 94500+(1.20*q)	120900	124200	-3300	Unfavourable
Depreciation	68000	69700	-1700	Unfavourable
Total	305600	293850	-6240	Unfavourable