You have just been hired by FAB Corporation, the manufacturer of a revolutionary

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 "da what you can to help us get better control of our manufacturing overhead costs You nind that the company has never used a nexible buoget and you suggest tnat preparing such a budget would be a excellent first step in oveshead planning and control Ater much effort and analysis, you determined the tollowing cost formulas and gathered the olowing actual cost data for March Actual Cost in March S24 200 S 7B 100 S 8 400 149 600 Cost Formula Utiitios Maintenance Supplies Indiract labor Depreciatiorn $20,600 plus $0 10 per machine-hour 40.000 plus $1 00 per machine hou $0 30 per machine hour $130,000 plus $0 70 per machine hour $70.000 7 500 March Ouring March, the company worked 26,000 machine, hours and produced 15.000 units ihecomoad oranalyplanned to work 30 080 machine hours dun

Explanation / Answer

1. Activity variance = planning budgeted amount - flexible budgeted amount. If flexible budgeted amount<planning budgeted amount then variance is favorable, otherwise it will be unfavorable.

Planning budget will be based on the planned 30,000 machine hours and the amounts are shown below:

The next step is to compute the flexible budget, based on actual 26,000 machine hours. The flexible budget is:

Thus the answer is:

Activity variance:

None

Total 8,400.00 F

2. Spending variance = actual results - flexible budget results. If actual<flexible amount then variance is favorable, otherwise it will be unfavorable.

Thus the answer for spending variance is:

Total 16,600.00 U

Formula Planned costs Utilities 20600+(0.1*30000) 23,600.00 Maintenance 40000+(1*30000) 70,000.00 Supplies 0.3*30000 9,000.00 Indirect labor 130000+(0.7*30000) 151,000.00 Depreciation 70,000.00 70,000.00

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