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: During March, the company worked 15.000 machine-hours and produced 9.000 units. The company had originally planned to work 17,000 machine-hours during March. Required: Complete the report showing 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.) Complete the report showing 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.)

Explanation / Answer

Fab Corporation Planning & Flexible Budget Planning Budget Mar Flexible Budget Mar Activity Variance= Actual cost Mar Spending variance= M/C Hrs involved           17,000               15,000 Planning Budget-Flexible budget costs F/U Flexible Budget-Actuals F/U Cost Formula Utilities 16300+0.20*MH           19,700               19,300                                400 F         21,500                2,200 U Maintenance 38700+1.8*MH           69,300               65,700                            3,600 F         63,100                2,600 F Supplies 0.70*MH           11,900               10,500                            1,400 F         11,700                1,200 U Indirect Labor 94800+1.20*MH         115,200            112,800                            2,400 F       116,100                3,300 U Depreciation 67900           67,900               67,900                                   -           69,600                1,700 U Total Cost         284,000            276,200                            7,800 F       282,000                5,800 U

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