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 36:27 Utilities Maintenance Supplies Indirect labor Depreciation Cost Formula $16,800 plus $0.13 per machine-hour $38,200 plus $1.30 per machine-hour $0.60 per machine-hour $94,200 plus $1.40 per machine-hour $67,800 March $ 21,200 $ 58,000 $ 11,800 $123,100 $ 69,500 During March, the company worked 18,000 machine-hours and produced 12,000 units. The company had originally planned to work 20,000 machine-hours during March. Required: 1. Prepare a flexible budget for March. 2. Prepare a report showing the spending variances for March u tion hu entering your answers in the tabs below.

Answer 1

FAB Corporation
Flexible Budget
For the month ended March 31
		Flexible Budget
Machine hours	(q)	18,000
Utilities	[$16,800 + ($0.13 X q)]	$     19,140
Maintenance	[$38,200 + ($1.30 X q)]	$     61,600
Supplies	($0.60 X q)	$     10,800
Indirect Labor	[$94,200 + ($1.40 X q)]	$ 1,19,400
Depreciation	$                             67,800	$     67,800
Total		$ 2,78,740
FAB Corporation
Activity Variance
For the month ended March 31
		Flexible Budget	Actual results	Spending Variances
Machine hours	(q)	18,000	18,000
Utilities	[$16,800 + ($0.13 X q)]	$     19,140	$       21,200	$      2,060	U
Maintenance	[$38,200 + ($1.30 X q)]	$     61,600	$       58,000	$      3,600	F
Supplies	($0.60 X q)	$     10,800	$       11,800	$      1,000	U
Indirect Labor	[$94,200 + ($1.40 X q)]	$ 1,19,400	$   1,23,100	$      3,700	U
Depreciation	$                             67,800	$     67,800	$       69,500	$      1,700	U
Total		$ 2,78,740	$   2,83,600	$      4,860	U