Question

ou 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 $0.12 per machine-hour	$	20,620
Maintenance	$38,500 plus $1.90 per machine-hour	$	72,200
Supplies	$0.80 per machine-hour	$	16,600
Indirect labor	$94,600 plus $1.80 per machine-hour	$	133,300
Depreciation	$68,000	$	69,700

During March, the company worked 19,000 machine-hours and produced 13,000 units. The company had originally planned to work 21,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March

Answer 1

1.

FAB Corporation
Flexible Budget
For the Month of March
	Flexible Budget	Planning Budget	Activity Variance
Machine-hours	19000	21000	2000	F
Utilities	18580	18820	240	F
Maintenance	74600	78400	3800	F
Supplies	15200	16800	1600	F
Indirect labor	128800	132400	3600	F
Depreciation	68000	68000	0	None
Total	305180	314420	9240	F

Working:

FAB Corporation
Flexible Budget
For the Month of March
	Flexible Budget	Planning Budget	Activity Variance
Machine-hours	19000	21000	2000	F
Utilities	=19000*0.12+16300	=21000*0.12+16300	=D8-C8	F
Maintenance	=19000*1.9+38500	=21000*1.9+38500	=D9-C9	F
Supplies	=19000*0.8	=21000*0.8	=D10-C10	F
Indirect labor	=19000*1.8+94600	=21000*1.8+94600	=D11-C11	F
Depreciation	68000	68000	0	None
Total	=SUM(C8:C12)	=SUM(D8:D12)	=SUM(E8:E12)	F

2.

FAB Corporation
Spending Variance Report
For the Month Ended March 31
	Actual Results	Spending Variance		Flexible Budget
Machine-hours	19000			19000
Utilities	20620	2040	U	18580
Maintenance	72200	2400	F	74600
Supplies	16600	1400	U	15200
Indirect labor	133300	4500	U	128800
Depreciation	69700	1700	U	68000
Total	312420	7240	U	305180