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 21,000 machine-hours and produced 15,000 units. The company had originally planned to work 23,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for 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.)

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.)

Cost Formula Actual Cost in March Utilities $16,800 plus $0.21 per machine-hour $ 23,430 Maintenance $38,500 plus $1.60 per machine-hour $ 69,100 Supplies $0.70 per machine-hour $ 15,900 Indirect labor $94,600 plus $1.70 per machine-hour $ 134,600 Depreciation $68,000 $ 69,700

Explanation / Answer

FAB Corporation Activity Variances For the Month Ended March 31 Planning budget Flexible budget Activity variances Utilities 21630 21210 420 F Maintenance 75300 72100 3200 F Supplies 16100 14700 1400 F Indirect labor 133700 130300 3400 F Depreciation 68000 68000 0 None Total 314730 306310 8420 F FAB Corporation Spending Variances For the Month Ended March 31 Actual Flexible budget Spending Variances Utilities 23430 21210 2220 U Maintenance 69100 72100 3000 F Supplies 15900 14700 1200 U Indirect labor 134600 130300 4300 U Depreciation 69700 68000 1700 U Total 312730 306310 6420 U

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