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: Utilities Maintenance Supplies Indirect labor Depreciation Cost Formula $16,600 plus $0.18 per machine-hour $38,900 plus $1.30 per machine-hour $0.50 per machine-hour $94,600 plus $1.80 per machine-hour $67,800 Actual Cost in March $ 21,280 $ 53,500 $ 7,800 $124.300 $ 69,500 During March, the company worked 14,000 machine-hours and produced 8,000 units. The company had originally planned to work 16,000 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	19480	19120	360	F
Maintenance	59700	57100	2600	F
Supplies	8000	7000	1000	F
Indirect labor	123400	119800	3600	F
Depreciation	67800	67800	0	None
Total	278380	270820	7560	F
2
	Actual cost	Flexible budget	Spending variances
Utilities	21280	19120	2160	U
Maintenance	53500	57100	3600	F
Supplies	7800	7000	800	U
Indirect labor	124300	119800	4500	U
Depreciation	69500	67800	1700	U
Total	276380	270820	5560	U