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: Cost Formula Actual Cost in March Utilities $16,200 + $0.11 per machine-hour $ 20,420 Maintenance $38,500 + $1.40 per machine-hour $ 63,100 Supplies $0.50 per machine-hour $ 10,800 Indirect labor $94,200 + $1.70 per machine-hour $ 132,500 Depreciation $67,900 $ 69,600 During March, the company worked 20,000 machine-hours and produced 14,000 units. The company had originally planned to work 22,000 machine-hours during March. Required: 1. Calculate the activity variances for March. 2. Calculate the spending variances for March

Answer 1

1
	Planning budget	Flexible budget	Activity variances
Utilities	18620	18400	220	F
Maintenance	69300	66500	2800	F
Supplies	11000	10000	1000	F
Indirect labor	131600	128200	3400	F
Depreciation	67900	67900	0	None
Total	298420	291000	7420	F
2
	Actual cost	Flexible budget	Spending variances
Utilities	20420	18400	2020	U
Maintenance	63100	66500	3400	F
Supplies	10800	10000	800	U
Indirect labor	132500	128200	4300	U
Depreciation	69600	67900	1700	U
Total	296420	291000	5420	U