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 + $0.17 per machine-hour	$	21,700
Maintenance	$38,700 + $1.70 per machine-hour	$	66,500
Supplies	$0.70 per machine-hour	$	13,800
Indirect labor	$95,000 + $1.80 per machine-hour	$	131,900
Depreciation	$68,400	$	70,100

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. Prepare a flexible budget for March.

Prepare a flexible budget for March. (Input all amounts as positive values.)

	FAB Corporation Flexible Budget For the Month Ended March 31 Machine-hours Utilities Maintenance Supplies Indirect labor Depreciation Total

2. Prepare a report showing the spending variances for March.

Prepare a report showing 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

Answer-1)-

FAB Corporation
Spending variance for the month of March 31
Particulars	Flexible Budget	Actual	Difference	Remark
	$	$	$
Utilities	$16500+(18000 machine hours*0.17 per hour)=$19560	21700	-2140	Unfavorable
Maintenance	38700+(18000 machine hours*1.70 per hour)=$69300	66500	2800	Favorable
Supplies	18000 machine hours*0.70 per hour=12600	13800	-1200	Unfavorable
Indirect Labor	$95000+(18000 machine hours*1.80 per hour)=$127400	131900	-4500	Unfavorable
Depreciation	$68400	70100	-1700	Unfavorable
Totals	297260	304000	-6740	Unfavorable

2)-

FAB Corporation
Activity Variance for the month of March 31
Particulars	Planning Budget	Flexible Budget	Difference	Remark
	$	$	$
Utilities	$16500+(20000 machine hours*0.17 per hour)=$19900	$16500+(18000 machine hours*0.17 per hour)=$19560	340	Favorable
Maintenance	38700+(20000 machine hours*1.70 per hour)=$72700	38700+(18000 machine hours*1.70 per hour)=$69300	3400	Favorable
Supplies	20000 machine hours*0.70 per hour=14000	18000 machine hours*0.70 per hour=12600	1400	Favorable
Indirect Labor	$95000+(20000 machine hours*1.80 per hour)=$131000	$95000+(18000 machine hours*1.80 per hour)=$127400	3600	Favorable
Depreciation	$68400	$68400	0	None
Totals	306000	297260	8740	Favorable