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 “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:

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:

Explanation / Answer

Report showing Activity Variance

Report showing Spending Variance

Particulars Planning Budget Flexible Budget Activity Variance Machine Hours (q) 19000 17000 Utilities 16600+(0.15*q) 19450 19150 300 Favourable Maintenance 38200+(1.80*q) 72400 68800 3600 Favourable Supplies (0.50*q) 9500 8500 1000 Favourable Indirect Labour 94200+(1.70*q) 126500 123100 3400 Favourable Depreciation 68000 68000 0 Favourable Total 295850 287550 8300 Favourable

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