Question

In: Accounting

ou have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door...

ou 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 $16,000 + $0.12 per machine-hour $ 20,200
Maintenance $38,300 + $2.10 per machine-hour $ 74,100
Supplies $0.60 per machine-hour $ 11,800
Indirect labor $94,800 + $1.30 per machine-hour $ 121,700
Depreciation $67,900 $ 69,600

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. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Solutions

Expert Solution

1.

Planning Budget Flexible Budget Activity Variance
Machine Hours 20000 18000
Utilities $      18,400 $       18,160 $         240 U
Maintenance $      80,300 $       76,100 $      4,200 U
Supplies $      12,000 $       10,800 $      1,200 U
Indirect Labor $    120,800 $     118,200 $      2,600 U
Depreciation $      67,900 $       67,900 $            -   None
Total Expenses $    299,400 $     291,160 $      8,240 U

2.

Actual Results Flexible Budget Spending Variance
Machine Hours 18000 18000
Utilities $      20,200 $       18,160 $      2,040 U
Maintenance $      74,100 $       76,100 $      2,000 F
Supplies $      11,800 $       10,800 $      1,000 U
Indirect Labor $    121,700 $     118,200 $      3,500 U
Depreciation $      69,600 $       67,900 $      1,700 U
Total Expenses $    297,400 $     291,160 $      6,240 U

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