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 $20,750 66,400 $13,100 $125,400 $69,600 Cost Formula Utilities Maintenance Supplies Indirect labor $94,100 plus $1.60 per machine-hour Depreciation $67,900 $16,100 plus $0.15 per machine-hour $38,400 plus $1.80 per machine-hour $0.70 per machine-hour During March, the company worked 17,000 machine-hours and produced 11,000 units. The company had originally planned to work 9,000 machine-hours during March Required: 1. Calculate the activity variances for March 2. Calculate the spending variances for March

Explanation / Answer

Particulars Cost formula Actual Spending variance Flexible budget Activity variance Static budget Machine hours 17000 17000 19000 Variable overhead cost Utilities 16000 + .15X 20750 2200 U 18550 300 F 18850 Maintenance 38400+1.80X 66400 2600 F 69000 3600 F 72600 Supplies .70X 13100 1200 U 11900 1400 F 13300 indirect labor 94100+1.6X 125400 4100 U 121300 3200 F 124500 Depreciation 67900 69600 1700 U 67900 0 67900 Total overhead cost 295250 6600 U 288650 8500 F 297150

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