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	$16,600 plus $0.16 per machine-hour	$	21,600
Maintenance	$38,300 plus $2.00 per machine-hour	$	72,100
Supplies	$0.80 per machine-hour	$	15,800
Indirect labor	$94,800 plus $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

Answer 1

Answer:-1)-

Fab Corporation
Spending Variances
For the month ended March
Particulars		Flexible Budget	Actual Results	Variances	Remark
		$	$	$
Utilities	(18000 machine hours*$.16 per hour)+$16600	19480	21600	-2120	Unfavourable
Maintenance	(18000 machine hours*$2 per hour)+$38300	74300	72100	2200	Favourable
Supplies	(18000 machine hours*$.80 per hour)	14400	15800	-1400	Unfavourable
Indirect Labor	(18000 machine hours*$1.30 per hour)+$94800	118200	121700	-3500	Favourable
Depreciation		67900	69600	-1700	Unfavourable
	Total Expenses	294280	300800	-6520	Unfavourable

2)-

Fab Corporation
Activity Variances
For the month ended March
Particulars		Planning Budget	Flexible Budget	Variances	Remark
		$	$	$
Utilities	(20000 machine hours*$.16 per hour)+$16600	19800	19480	320	Favourable
Maintenance	(20000 machine hours*$2 per hour)+$38300	78300	74300	4000	Favourable
Supplies	(20000 machine hours*$.80 per hour)	16000	14400	1600	Favourable
Indirect Labor	(20000 machine hours*$1.30 per hour)+$94800	120800	118200	2600	Favourable
Depreciation		67900	67900	0	None
	Total Expenses	302800	294280	8520	Favourable