You have just been hired by FAB Corporation, the manufacturer of a revolutionary
ID: 2516405 • Letter: Y
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: Actual Cost Cost Formula in March Utilities Supplies $0.40 per machine-hour Depreciation $68,500 $16,400 plus $O.15 per machine-hour $ 20,750 Maintenance $38,100 plus $2.10 per machine-hour 67,600 S 6,600 Indirect labor $94,900 plus $1.90 per machine-hour $ 128.100 $70,200 During March, the originally planned to work 17,000 machine-hours during MarchExplanation / Answer
1.
FAB Corporation
Flexible Budget
For the Month Ended March 31
Utilities
$ 18,650
Maintenance
$ 69,600
Supplies
$ 6,000
Indirect labor
$ 123,400
Depreciation
$ 68,500
Total
$ 286,150
Explanation:
Utilities = $ 16,400 + ($ 0.15 x 15,000) = $ 16,400 + $ 2,250 = $ 18,650
Maintenance = $ 38,100 + ($ 2.10 x 15,000) = $ 38,100 + $ 31,500 = $ 69,600
Supplies = $ 0.40 x 15,000 = $ 6,000
Indirect labor = $ 94,900 + ($ 1.90 x 15,000) = $ 94,900 + $ 28,500 = $ 123,400
2.
FAB Corporation
Spending Variance
For the Month Ended March 31
Utilities
$ 2,100
U
Maintenance
$ 2,000
F
Supplies
$ 600
U
Indirect labor
$ 4,700
U
Depreciation
$ 1,700
U
Total
$ 7,100
U
FAB Corporation
Flexible Budget
For the Month Ended March 31
Utilities
$ 18,650
Maintenance
$ 69,600
Supplies
$ 6,000
Indirect labor
$ 123,400
Depreciation
$ 68,500
Total
$ 286,150
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