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 $20,600 plus $0.10 per machine-hour $ 24,200 Maintenance $40,000 plus $1.60 per machine-hour $ 78,100 Supplies $0.30 per machine-hour $ 8,400 Indirect labor $130,000 plus $0.70 per machine-hour $ 149,600 Depreciation $70,000 $ 71,500 During March, the company worked 26,000 machine-hours and produced 15,000 units. The company had originally planned to work 30,000 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

1.

FAB Corporation
Activity Variances
For the Month Ended March 31
Utilities	400	F
Maintenance	6400	F
Supplies	1200	F
Indirect labor	2800	F
Depreciation	0	None
Total	10800	F

Working:

	Flexible Budget	Planning Budget	Activity Variance
Machine-hours	26000	30000
Utilities	23200	23600	400	F
Maintenance	81600	88000	6400	F
Supplies	7800	9000	1200	F
Indirect labor	148200	151000	2800	F
Depreciation	70000	70000	0	None
Total	330800	341600	10800	F

2.

FAB Corporation
Spending Variances
For the Month Ended March 31
Utilities	1000	U
Maintenance	3500	F
Supplies	600	U
Indirect labor	1400	U
Depreciation	1500	U
Total	1000	U

Working:

	Actual Results	Spending Variance		Flexible Budget
Machine-hours	26000			26000
Utilities	24200	1000	U	23200
Maintenance	78100	3500	F	81600
Supplies	8400	600	U	7800
Indirect labor	149600	1400	U	148200
Depreciation	71500	1500	U	70000
Total	331800	1000	U	330800