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 $0.18 per machine-hour $ 21,500 Maintenance $38,700 plus $2.00 per machine-hour $ 72,500 Supplies $0.70 per machine-hour $ 13,800 Indirect labor $94,100 plus $1.70 per machine-hour $ 129,000 Depreciation $67,500 $ 69,200 During March, the company worked 18,000 machine-hours and produced 12,000 units. The company had originally planned to work 20,000 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	19700	19340	360	F
Maintenance	78700	74700	4000	F
Supplies	14000	12600	1400	F
Indirect labor	128100	124700	3400	F
Depreciation	67500	67500	0	None
Total	308000	298840	9160	F
2
	Actual cost	Flexible budget	Spending variances
Utilities	21500	19340	2160	U
Maintenance	72500	74700	2200	F
Supplies	13800	12600	1200	U
Indirect labor	129000	124700	4300	U
Depreciation	69200	67500	1700	U
Total	306000	298840	7160	U