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	$16,000 + $0.12 per machine-hour	$	20,440
Maintenance	$38,300 + $1.80 per machine-hour	$	71,700
Supplies	$0.50 per machine-hour	$	10,800
Indirect labor	$94,900 + $1.70 per machine-hour	$	133,200
Depreciation	$67,800	$	69,500

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.

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

				Flexible	Activity variance		planned
		Fixed	variable	budget			budget
Machine hours				20,000			22,000
utilities		16,000	0.12	18400	240	F	18640
maintenance		38,300	1.8	74300	3600	F	77900
supplies			0.5	10000	1000	F	11000
indirect labor		94,900	1.7	128900	3400	F	132300
Depreciation		67,800		67,800	0	N	67,800
totale xpense			4.12	299400	8240	F	307640
				Flexible	Sepnding variance		Actual
		Fixed	variable	budget			budget
Machine hours				20,000			20,000
utilities		16,000	0.12	18400	2040	U	20,440
maintenance		38,300	1.8	74300	2,600	F	71,700
supplies			0.5	10000	800	U	10,800
indirect labor		94,900	1.7	128900	4300	U	133,200
Depreciation		67,800		67,800	1,700	U	69,500
totale xpense			4.12	299400	6240	U	305640
	highlighted one are the answers