Question

"You work at a manufacturing plant and your supervisor has requested that you review the company’s costing system because the company trying to better understand and control their costs. The schedules below include the cost formulas your company uses to create their flexible budget and the schedule of March's actual cost data:" Cost Formulas: Actual Costs in March   Utilities $16,600 plus $0.18 per machine-hour   Utilities $22,360   Maintenance $38,800 plus $2.00 per machine-hour   Maintenance $76,600   Supplies $0.30 per machine-hour   Supplies $6,400   Indirect labor $95,000 plus $1.50 per machine-hour   Indirect labor $128,900   Depreciation $67,800   Depreciation $69,500 During March, the company actually worked 20,000 machine-hours and produced 14,000 units. The company had originally planned to work 22,000 machine-hours during March.

Prepare a flexible budget for March: Flexible budget Utilities $16,600+.18*20,000 $20,200.00 Maintenance 38,800+2.80*20,000 $78,800.00 Supplies .20*20,000 $6,000.00 Indirect Labor 95,000+1.50*20,000 $125,000.00 Depreciation $67,800.00 Total $297,800.00 Prepare a report showing the spending variances for March. Be sure to calculate the total spending variance as well. Indicate whether each individual variance and the total spending variance is favorable or unfavorable.

After calculating the numerical variances, provide a brief explanation of your variances, including a discussion of which variances should be further investigated. Actual Spending Variance Flexible Budget Utilities 22,360 2,160-Unfavorable $20,200.00 Maintenance 76,600 2,200-Favorable $78,800.00 Supplies 6,400 400-Unfavorable $6,000.00 Indirect Labor 128,900 3,900-Unfavorable $125,000.00 Depreciation 69,500 1,700-Favorable $67,800.00 Total 303,760 5,960-Unfavorable $297,800.00

. B I Ur tv = - - x fx Completing a Master Budget (LO7-2, LO7-4, LO7-7, LO7-8, L07-9, LO7-10) You work at a manufacturing plant and your supervisor has requested that you review the company's costing system because the company trying to better understand and control their costs. The schedules below include the cost formulas your company uses to create their flexible budget and the schedule of March's act cost data: Utilities Maintenance Supplies Indirect labor Depreciation Cost Formulas: $16,600 plus $0.18 per machine-hour $38,800 plus $2.00 per machine-hour $0.30 per machine-hour $95,000 plus $1.50 per machine hour $67.300 Actual Costs in March Utilities $ 22,360 Maintenance $ 76,600 Supplies $ 6,400 Indirect labor $ 128,900 Depreciation $ 69,500 During March, the company actually worked 20,000 machine-hours and produced 14,000 units. The company had originally planned to work 22,000 machine hours during March. eqi Prepare a flexible budget for March: Flexible budget Utilities $16,600+.18 20,000 Maintenance 38,800+2.80*20,000 Supplies 20*20,000 Indirect Labor 95,000+1.50*20,000 Depreciation Total $20,200.00 $78,800.00 $6,000.00 $125,000.00 $67,800.00 $297,800.00 Req2 Prepare a report showing the spending variances for March. Be sure to calculate the total spending variance as well. Indicate whether each individual variance and the total spending variance is favorable or unfavorable. After calculating the numerical variances, provide a brief explanation of your variances, including a discussion of which variances should be further investigated Actual Utilities Maintenance Supplies Indirect Labor Depreciation Spending Variance Flexible Budget 22,360 2,160-Unfavorable $20,200.00 76,600 2,200-Favorable $78,800.00 6,400 400-Unfavorable $6,000.00 128,900 3,900-Unfavorable $125,000.00 69,500 1,700-Favorable $67,800.00 303,760 5,960-Unfavorable $297,800.00 Problem 1 Problem 2

Answer 1

Based upon the cost Formulas, Flexible Budget for Production Level at which Plant is actually operated for the month of March (20000 machine hours) is as below:

Part I: Flexible Budget/ for 20000 machine hours Particular Calculation based on cost formula Utlities 16600+ 0.18*20000 Maitenance 38800+ 2*20000 Supplies 0.30*20000 Indirect Labour 95000+ 1.5*20000 Depreciation Total Amount in $ 20200 78800 6000 125000 67800 297800

Spending Variance is Variance in Budgeted Cost/Spend for Actual Production Level (20000 machine hours here) vs Actual Cost incurred. Same is calculated as below:

Part II: Spending Variance (20000 machine hours) Particular Utlities Maitenance Supplies Indirect Labour Depreciation Total Budgeted Cost Actual Cost Spending Nature (As calculated (Given) Varinace in part 1) 20200 22360 2160 Unfavorable 78800 76600 2200 Favorable 6000 6400 400 Unfavorable 125000 128900 3900 Unfavorable 67800 69500 1700 Unfavorable 297800 303760 5960 Unfavorable

In total, actual spending exceed budgeted spending by $ 5960. Hence it is Unfavorable.