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 $ 21,880 $55,500 $ 8,800 $ 128,100 $69,600 Cost Formula Utilities Maintenance Supplies Indirect labor $16,300 plus $0.21 per machine-hour $38,300 plus $1.30 per machine-hour S0.50 per machine-hour S94,800 plus $1.80 per machine-hour $67,900 ation 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 1. Calculate the activity variances for March. 2. Calculate the spending variances for March.

Answer 1

1.

	Planning Budget	Flexible Budget	Activity Variance
Machine-hours(q)	$                    18,000	$                   16,000
Utilities ($16,300 + $0.21 q)	$                    20,080	$                   19,660	$                       420	F
Maintenance ($38,300+$1.3q)	$                    61,700	$                   59,100	$                    2,600	F
Supplies ( $0.50q)	$                      9,000	$                      8,000	$                    1,000	F
Indirect labor ($94,800 + $ 1.8q)	$                  127,200	$                 123,600	$                    3,600	F
Depreciation	$                    67,900	$                   67,900	$                           -	None
Total	$                  303,880	$                 294,260	$                    7,620	F

2.

	Flexible Budget	Actual Results	Spending Variance
Machine-hours(q)	$                    16,000	$                   16,000
Utilities ($16,300 + $0.21 q)	$                   19,660	$                   21,880	$                         2,220	U
Maintenance ($38,300+$1.3q)	$                    59,100	$                   55,500	$                         3,600	F
Supplies ( $0.50q)	$                      8,000	$                      8,800	$                             800	U
Indirect labor ($94,800 + $ 1.8q)	$                  123,600	$                 128,100	$                         4,500	U
Depreciation	$                    67,900	$                   69,600	$                         1,700	U
Total	$                  294,260	$                 299,880	$                         5,620	U