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	$16,200 plus $0.19 per machine-hour	$	22,370
Maintenance	$38,300 plus $1.80 per machine-hour	$	73,500
Supplies	$0.70 per machine-hour	$	15,900
Indirect labor	$95,000 plus $1.70 per machine-hour	$	135,000
Depreciation	$68,000	$	69,700

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. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Req 1

Calculate the activity variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

	FAB Corporation Activity Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total

Req 2

Calculate the spending variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

	FAB Corporation Spending Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total

Answer 1

solution: Part 1: FAB CORPORATION Activity variances For the Month Ended March 31 Planning budget** Activity variance Flexible budget** b=a-c Utilities Maintenance Supplies Indirect labor Depreciation Total expenses 20,570 79,700 16,100 134,100 68,000 318,470 380F 3,600F 1,400F 3,400F 0 None 8,780 F 20,190 76,100 14,700 130,700 68,000 309,690 Part 2: FAB CORPORATION Spending variances For the Month Ended March 31 H| actual results spending variance Flexible budget** b=a-C Utilities Maintenance Supplies Indirect labor Depreciation Total expenses 22,370 73,500 15,900 135,000 69,700 316,470 2,180 U 2,600F 1,200U 4,300U 1,700U 6,780U 20,190 76,100 14,700 130,700 68,000 309,690 **Wokring: Utilities Maintenance Supplies Indirect labor Depreciation Total expenses fixed component variable component per machine hour flexible budget Planning budget c=a+b*21000 c=a+b*23000 16200 0.19 20190 20570 38300 1.80 76100 79700 0.70 14700 16100 95000 1.70 130700 134100 68000 68000 68000 309690 318470