Question

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has E asked that you review the company's costing system and “do what you can to help us get better control of our manufacturing E overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be E 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: Utilities Maintenance Supplies Indirect labor Depreciation Cost Formula $16,600 plus $0.21 per machine-hour $38,800 plus $1.40 per machine-hour $0.30 per machine-hour $94,300 plus $1.60 per machine-hour $68,200 Actual Cost in March $ 22,180 $ 57,800 $ 5,200 $124,000 $ 69,900 During March, the company worked 16,000 machine-hours and produced 10,000 units. The company had originally planned to work € 18,000 machine-hours during March. Required: E 1. Calculate the activity variances for March. 2. Calculate the spending variances for March.

Same format for spending variance^

Answer 1

Answer

• Requirement 1

	Activity Variance
Utilities	$                420.00	Favourable
Maintenance	$            2,800.00	Favourable
Supplies	$                600.00	Favourable
Indirect Labor	$            3,200.00	Favourable
Depreciation	$                         -	None
Total Expenses	$            7,020.00	Favourable

• Requirement 2

	Spending Variance
Utilities	$         2,220.00	Unfavourable
Maintenance	$         3,400.00	Favourable
Supplies	$             400.00	Unfavourable
Indirect Labor	$         4,100.00	Unfavourable
Depreciation	$         1,700.00	Unfavourable
Total Expenses	$         5,020.00	Unfavourable

• Working

							Flexible Budget	Planning Budget
Machine hours							16,000	18,000
Utilities		$      16,600.00	+ (	$      0.21	16,000 or 18000	)	$             19,960.00	$          20,380.00
Maintenance		$      38,800.00	+	$      1.40	16,000 or 18000	)	$             61,200.00	$          64,000.00
Supplies		$                      -	+	$      0.30	16,000 or 18000	)	$               4,800.00	$             5,400.00
Indirect Labor		$      94,300.00	+	$      1.60	16,000 or 18000	)	$           119,900.00	$        123,100.00
Depreciation		$      68,200.00	)	$           -	16,000 or 18000		$             68,200.00	$          68,200.00
Total Expenses							$           274,060.00	$        281,080.00