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 $16,300 plus $0.20 per machine-hour $ 22,500 Maintenance $39,000 plus $1.60 per machine-hour $ 68,000 Supplies $0.80 per machine-hour $ 17,400 Indirect labor $94,300 plus $1.40 per machine-hour $ 126,000 Depreciation $67,900 $ 69,600 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. Complete the report showing 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.) 2. Complete the 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.)

Answer 1

Solution :
1	Activity Veriance for March
		FAB Corporation
		Activity Variances
		For the Month Ended March 31
				Flexible	Planning	Activity
				Budget	Budget	Variances
		Machine hours (Mhrs)		20000	22000
		Utilites ($16300 + 0.20 (Mhrs)		$20,300	$20,700	$400	F
		Maintenance ($ 39000 + 1.60(Mhrs)		$71,000	$74,200	$3,200	F
		Supplies	(0.80 (Mhrs)	$16,000	$17,600	$1,600	F
		Indirect labour (94300 + 1.40 (Mhrs)		$122,300	$125,100	$2,800	F
		Depreciation ($67,600)		$67,600	$67,600	$0	None
			Total	$297,200	$305,200	$8,000	F
2	Spending Veriance for March
			FAB Corporation
			Spending Variances
			For the Month Ended March 31
				Actual	Flexible	Activity
				Results	Budget	Variances
		Machine hours (Mhrs)		20000	20000
		Utilites ($16300 + 0.20 (Mhrs)		$22,500	$20,300	$2,200	U
		Maintenance ($ 39000 + 1.60(Mhrs)		$68,000	$71,000	$3,000	F
		Supplies	(0.80 (Mhrs)	$17,400	$16,000	$1,400	U
		Indirect labour (94300 + 1.40 (Mhrs)		$126,000	$122,300	$3,700	U
		Depreciation ($67,600)		$69,600	$67,600	$2,000	U
			Total	$303,500	$297,200	$6,300	U