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 $0.17 per machine-hour	$	21,290
Maintenance	$38,500 plus $1.70 per machine-hour	$	61,200
Supplies	$0.50 per machine-hour	$	8,300
Indirect labor	$94,200 plus $1.30 per machine-hour	$	117,200
Depreciation	$68,400	$	70,100

During March, the company worked 15,000 machine-hours and produced 9,000 units. The company had originally planned to work 17,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

• Required 1

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

• Required 2

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

• Requirement 1

	Activity Variance
Utilities	$                340.00	Favourable
Maintenance	$            3,400.00	Favourable
Supplies	$            1,000.00	Favourable
Indirect Labor	$            2,600.00	Favourable
Depreciation	$                         -	None
Total Expenses	$            7,340.00	Favourable

• Requirement 2

	Spending Variance
Utilities	$         1,240.00	Unfavourable
Maintenance	$         1,200.00	Favourable
Supplies	$         7,500.00	Unfavourable
Indirect Labor	$         6,600.00	Unfavourable
Depreciation	$             800.00	Unfavourable
Total Expenses	$       14,940.00	Unfavourable

• Workings

							Flexible Budget	Planning Budget
Machine hours							15,000	17,000
Utilities		$      16,600.00	+ (	$      0.17	15,000 or 17000	)	$             19,150.00	$          19,490.00
Maintenance		$      38,500.00	+	$     1.70	15,000 or 17000	)	$             64,000.00	$          67,400.00
Supplies		$                      -	+	$      0.50	15,000 or 17000	)	$               7,500.00	$             8,500.00
Indirect Labor		$      94,200.00	+	$      1.30	15,000 or 17000	)	$           113,700.00	$        116,300.00
Depreciation		$      68,400.00	)	$           -	15,000 or 17000		$             68,400.00	$          68,400.00
Total Expenses							$           272,750.00	$        280,090.00