Managerial Accounting - Chapter 9 Calculate the activity and spending variances

Question

Managerial Accounting - Chapter 9

Calculate the activity and spending variances for March using the information below.

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 in March $ 21,340 $ 52,900 $ 7,800 $113,100 $ 69,200 Cost Formula Utilities Maintenance Supplies Indirect labor $94,600 plus $1.10 per machine-hour Depreciation $16,500 plus $0.19 per machine-hour $38,300 plus $1.30 per machine-hour $0.50 per machine-hour $67,500 During March, the company worked 14,000 machine-hours and produced 8,000 units. The company had originally planned to work 16,000 machine-hours during March Required: 1. Calculate the activity variances for March 2. Calculate the spending variances for March.

Explanation / Answer

Planning budget Flexible budget Activity variances Utilities 19540 19160 380 F Maintenance 59100 56500 2600 F Supplies 8000 7000 1000 F Indirect labor 112200 110000 2200 F Depreciation 67500 67500 0 None Total 266340 260160 6180 F Actual Flexible budget Spending variances Utilities 21340 19160 2180 U Maintenance 52900 56500 3600 F Supplies 7800 7000 800 U Indirect labor 113100 110000 3100 U Depreciation 69200 67500 1700 U Total 264340 260160 4180 U

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