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	$16,500 plus $0.13 per machine-hour	$	21,030
Maintenance	$38,200 plus $1.70 per machine-hour	$	67,700
Supplies	$0.40 per machine-hour	$	8,200
Indirect labor	$94,100 plus $1.60 per machine-hour	$	128,600
Depreciation	$67,800	$	69,500

During March, the company worked 19,000 machine-hours and produced 13,000 units. The company had originally planned to work 21,000 machine-hours during March.

Required:

1.	Prepare a flexible budget 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 Flexible Budget For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total

      

2.	Prepare a report showing 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

1) Flexible Budget: FAB Corporation Flexible Budget For the Month Ended March 31 19,000 Machine Hours Utilities (S16.500S0.13 per machine-hour * 19.000 machine hours) $18,970 Maintenance (S38,200+ [S1.70 per machine-hour * 19,000 machine hours) $70,500 S7,600 Supplies (S0.40 per machine hour 19,000 machine hours) Indirect labor (S94,100 + [S1.60 per machine-hour* 19,000 machine hours) S124,500 S67,800 Depreciation Total Cost $289,370

2) Report showing spending variance: FAB Corporation Spending Variance For the Month ended March 31 Budget Actual for for 14,000 14,000 Spendin machine machine g bours hours Variance Utilities S18,970 S21,030 (S2,060) U $70,500 S67,700 $2,800 F S7,600 $8,200(S600) U $124,500 S128,600 (S4,100) U Maintenance Supplies Indirect Labor Depreciation S67,800 S69,500 (S1,700) U S289,370 S295,030 Total Cost