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	$16,500 plus $0.13 per machine-hour	$	20,770
Maintenance	$38,500 plus $1.70 per machine-hour	$	64,600
Supplies	$0.90 per machine-hour	$	16,900
Indirect labor	$94,900 plus $1.90 per machine-hour	$	131,900
Depreciation	$68,500	$	70,200

During March, the company worked 17,000 machine-hours and produced 11,000 units. The company had originally planned to work 19,000 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

1	Activity Variance for March
		Planning Budget	Flexible Budget	Activity Variance
	Machine hours	19000	17000
	Utilities ($16500 + $0.13 per machine hour)	$18,970	$18,710	$260	Favourable
	Maintenance ($38500 + $1.70 per machine hour)	$70,800	$67,400	$3,400	Favourable
	Supplies (0.90 per machine hour)	$17,100	$15,300	$1,800	Favourable
	Indirect labour ($94900 + $1.90 per machine Hour)	$131,000	$127,200	$3,800	Favourable
	Depreciation	$68,500	$68,500	$0	None
	Total	$306,370	$297,110	$9,260	Favourable
2	Spending variance for march
		Flexible Budget	Actual results	Spending Variance
	Machine hours	17000	17000
	Utilities ($16500 + $0.13 per machine hour)	$18,710	$20,770	-$2,060	Unfavourable
	Maintenance ($38500 + $1.70 per machine hour)	$67,400	$64,600	$2,800	Favourable
	Supplies (0.90 per machine hour)	$15,300	$16,900	-$1,600	Unfavourable
	Indirect labour ($94900 + $1.90 per machine Hour)	$127,200	$131,900	-$4,700	Unfavourable
	Depreciation	$68,500	$70,200	-$1,700	Unfavourable
	Total	$297,110	$304,370	-$7,260	Unfavourable