Problem 9-20 Activity and Spending Variances [LO9-1, LO9-2, LO9-3] You have just

Question

Problem 9-20 Activity and Spending Variances [LO9-1, LO9-2, LO9-3] 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: Actual Cost in March $ 24,200 $ 78,100 $8,400 149,600 $ 71,500 Cost Formula Utilities Maintenance Supplies Indirect labor $130,000 plus $0.70 per machine-hour Depreciation $70,000 $20,600 plus $0.10 per machine-hour $40,000 plus $1.60 per machine-hour $0.30 per machine-hour During March, the company worked 26,000 machine-hours and produced 15,000 units. The company had originally planned to work 30,000 machine-hours during March. 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 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

Explanation / Answer

ans

The activity variances are shown below: FAB Corporation Activity Variances For the Month Ended March 31 Flexible Budget Planning Budget Activity Variances   Machine-hours (q) 26000 30000           Utilities ($20,600 + $0.10q) $ 23200 $ 23600 $ 400 F   Maintenance ($40000 + $1.60q) 81600 88000 6400 F   Supplies ($0.30q) 7800 9000 1200 F   Indirect labor ($130000 + $.70q) 148200 151000 2800 F   Depreciation ($70000) 70000 70000 0 None        Total $ 330800 $ 341600 $ 10800 F

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