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 S 20,860 $ 59,200 $ 5,500 $ 117,700 $ 70,100 Cost Formula Utilities Maintenance Supplies Indirect labor Depreciation $68,400 $16,400 plus S0.14 per machine-hour $38,800 plus $1.40 per machine-hour $0.30 per machine-hour $94,000 plus $1.20 per machine-hour During March, the company worked 17,000 machine-hours and produced 11,000 units. The company had 0 originally planned to work 19,000 machine-hours during March

Explanation / Answer

1 Flexible budget Activity variances Planning budget Utilities 18780 280 F 19060 Maintenance 62600 2800 F 65400 Supplies 5100 600 F 5700 Indirect labor 114400 2400 F 116800 Depeciation 68400 0 None 68400 Total 269280 6080 F 275360 2 Actual Spending variances Flexible budget Utilities 20860 2080 U 18780 Maintenance 59200 3400 F 62600 Supplies 5500 400 U 5100 Indirect labor 117700 3300 U 114400 Depeciation 70100 1700 U 68400 Total 273360 4080 U 269280

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