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	$16,300 plus $0.13 per machine-hour	$	20,960
Maintenance	$38,100 plus $1.60 per machine-hour	$	67,100
Supplies	$0.50 per machine-hour	$	10,800
Indirect labor	$94,600 plus $1.70 per machine-hour	$	132,900
Depreciation	$68,300	$	70,000

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.

Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made.

The pizzeria’s cost formulas appear below:

	Fixed Cost per Month			Cost per Pizza			Cost per Delivery
Pizza ingredients				$	4.40
Kitchen staff	$	5,910
Utilities	$	610		$	0.30
Delivery person							$	3.10
Delivery vehicle	$	630					$	1.50
Equipment depreciation	$	400
Rent	$	1,870
Miscellaneous	$	730		$	0.15

  

In November, the pizzeria budgeted for 1,560 pizzas at an average selling price of $15 per pizza and for 220 deliveries.

Data concerning the pizzeria’s actual results in November appear below:

  

	Actual Results
Pizzas		1,660
Deliveries		200
Revenue	$	25,450
Pizza ingredients	$	7,210
Kitchen staff	$	5,850
Utilities	$	885
Delivery person	$	620
Delivery vehicle	$	986
Equipment depreciation	$	400
Rent	$	1,870
Miscellaneous	$	790

Required:

1. Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November. (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.)

Answer 1

Answer to first question in the list: