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 $16,100 plus $0.11 per machine-hour $ 19,880 Maintenance $38,000 plus $1.80 per machine-hour $ 64,200 Supplies $0.40 per machine-hour $ 7,000 Indirect labor $94,100 plus $1.70 per machine-hour $ 125,600 Depreciation $68,100 $ 69,800 During March, the company worked 16,000 machine-hours and produced 10,000 units. The company had originally planned to work 18,000 machine-hours during March. Required: 1. Calculate the activity variances for March. 2. Calculate the spending variances for March.

Answer 1

1
	Planning budget	Flexible budget	Activity variances
Utilities	18080	17860	220	F
Maintenance	70400	66800	3600	F
Supplies	7200	6400	800	F
Indirect labor	124700	121300	3400	F
Depreciation	68100	68100	0	None
Total	288480	280460	8020	F
2
	Actual	Flexible budget	Spending variances
Utilities	19880	17860	2020	U
Maintenance	64200	66800	2600	F
Supplies	7000	6400	600	U
Indirect labor	125600	121300	4300	U
Depreciation	69800	68100	1700	U
Total	286480	280460	6020	U