Question

A) Boyne University offers an extensive continuing education program in many cities throughout the state. For the convenience of its faculty and administrative staff and to save costs, the university operates a motor pool. The motor pool’s monthly planning budget is based on operating 20 vehicles; however, for the month of March the university purchased one additional vehicle. The motor pool furnishes gasoline, oil, and other supplies for its automobiles. A mechanic does routine maintenance and minor repairs. Major repairs are performed at a nearby commercial garage.

The following cost control report shows actual operating costs for March of the current year compared to the planning budget for March.

Boyne University Motor Pool Cost Control Report For the Month Ended March 31
	March Actual			Planning Budget			(Over) Under Budget
Miles		57,900			49,900
Autos		21			20
Gasoline	$	14,400		$	13,473		$	(927	)
Oil, minor repairs, parts		8,320			7,984			(336	)
Outside repairs		1,205			1,020			(185	)
Insurance		1,840			1,720			(120	)
Salaries and benefits		8,610			8,610			0
Vehicle depreciation		4,431			4,220			(211	)
Total	$	38,806		$	37,027		$	(1,779	)

The planning budget was based on the following assumptions:

1. $0.27 per mile for gasoline.
2. $0.16 per mile for oil, minor repairs, and parts.
3. $51 per automobile per month for outside repairs.
4. $86 per automobile per month for insurance.
5. $8,610 per month for salaries and benefits.
6. $211 per automobile per month for depreciation.

The supervisor of the motor pool is unhappy with the report, claiming it paints an unfair picture of the motor pool’s performance.

Required:

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.)

Please do the following for part B

B) 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 + $0.16 per machine-hour	$	21,180
Maintenance	$38,700 + $1.40 per machine-hour	$	57,700
Supplies	$0.60 per machine-hour	$	10,600
Indirect labor	$94,200 + $1.20 per machine-hour	$	116,700
Depreciation	$68,200	$	69,900

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. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Answer 1