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 Actual Cost in March $ 20,6ee $ 54,706e $ 5,806e $135,808 $ 69,70e Cost Formula Utilities Maintenance Supplies Indirect labor $94,900e plus $2.00 per machine-hour Depreciation $16,200 plus $e.13 per machine-hour $38,900 plus $1.10 per machine-hour $0.30 per machine-hour $68,e00 During March, the company worked 18,000 machine-hours and produced 12,000 units. The company had originally planned to work 20,000 machine-hours during March Required 1. Calculate the activity variances for March 2. Calculate the spending variances for March

Explanation / Answer

1 Flexible budget Planning budget Activity variances Utilities 18540 18800 260 F Maintenance 58700 60900 2200 F Supplies 5400 6000 600 F Indirect labor 130900 134900 4000 F Depreciation 68000 68000 0 None Total expenses 281540 288600 7060 F 2 Flexible budget Actual Activity variances Utilities 18540 20600 2060 U Maintenance 58700 54700 4000 F Supplies 5400 5800 400 U Indirect labor 130900 135800 4900 U Depreciation 68000 69700 1700 U Total expenses 281540 286600 5060 U

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