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:

	Cost Formula	Actual Cost in March
Utilities	$16,800 plus $0.14 per machine-hour	$	21,680
Maintenance	$38,500 plus $1.90 per machine-hour	$	74,100
Supplies	$0.50 per machine-hour	$	10,800
Indirect labor	$94,700 plus $1.50 per machine-hour	$	128,600
Depreciation	$68,000	$	69,700

During March, the company worked 20,000 machine-hours and produced 14,000 units. The company had originally planned to work 22,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Calculate the activity variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

	FAB Corporation Activity Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total

Calculate the spending variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

	FAB Corporation Spending Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total

Answer 1

				Flexible	Activity variance		planned
		Fixed	variable	budget			budget
Machine hours				20,000			22,000
utilities		16,800	0.14	19600	280	F	19880
maintenance		38,500	1.9	76500	3800	F	80300
supplies			0.5	10000	1000	F	11000
indirect labor		94,700	1.5	124700	3000	F	127700
Depreciation		68,000		68,000	0	N	68,000
totale xpense			4.04	298800	8080	F	306880
				Flexible	Sepnding variance		Actual
		Fixed	variable	budget			budget
Machine hours				20,000			20,000
utilities		16,800	0.14	19600	2080	U	21,680
maintenance		38,500	1.9	76500	2,400	F	74,100
supplies			0.5	10000	800	U	10,800
indirect labor		94,700	1.5	124700	3900	U	128,600
Depreciation		68,000		68,000	1,700	U	69,700
totale xpense			4.04	298800	6080	U	304880