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	$16,200 + $0.14 per machine-hour	$	20,520
Maintenance	$38,000 + $1.60 per machine-hour	$	60,600
Supplies	$0.70 per machine-hour	$	12,400
Indirect labor	$94,800 + $1.60 per machine-hour	$	124,500
Depreciation	$67,900	$	69,600

During March, the company worked 16,000 machine-hours and produced 10,000 units. The company had originally planned to work 18,000 machine-hours during March.

Required:

1. Prepare a flexible budget for March.

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

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

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

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

1)	Flexible Budget
	For the Month Ended March 31
	Machine-hours				16000
	Utilities		[$ 16200 + ($ 0.14 x 16000)]		$    18,440.00
	Maintenance		[$ 38000 + ($ 1.60 x 16000)]		$    63,600.00
	Supplies		($ 0.70 x 16000)		$    11,200.00
	Indirect labor		[$ 94800 + ($ 1.60 x 16000)]		$ 1,20,400.00
	Depreciation				$    67,900.00
	Total				$ 2,81,540.00

2)	Spending Variances
			Flexible	Actual
			Budget	Budget	Variance	Effect
	Utilities		$    18,440.00	$    20,520.00	$ 2,080.00	U
	Maintenance		$    63,600.00	$    60,600.00	$ 3,000.00	F
	Supplies		$    11,200.00	$    12,400.00	$ 1,200.00	U
	Indirect labor		$ 1,20,400.00	$ 1,24,500.00	$ 4,100.00	U
	Depreciation		$    67,900.00	$    69,600.00	$ 1,700.00	U
	Total				$ 6,080.00	U