Question

chapter 9 2

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	$17,000 + $0.18 per machine-hour	$	22,400
Maintenance	$38,400 + $2.00 per machine-hour	$	72,200
Supplies	$0.70 per machine-hour	$	13,800
Indirect labor	$94,500 + $1.40 per machine-hour	$	123,400
Depreciation	$67,900	$	69,600

During March, the company worked 18,000 machine-hours and produced 12,000 units. The company had originally planned to work 20,000 machine-hours during March.

Required:

1. Prepare a flexible budget for March.

2. Prepare a report showing the spending variances for March.

Answer 1

1) Flexible budget

	Flexible budget
Utilities (18000*.18+17000)	20240
Maintenance (18000*2+38400)	74400
Supplies (18000*.70)	12600
Indirect labor (18000*1.4+94500)	119700
Depreciation	67900
Total	294840

2) Spending variance

	Flexible budget	Actual	Spending variance
Utilities	20240	22400	2160 U
Maintenance	74400	72200	2200 F
Supplies	12600	13800	1200 U
Indirect labor	119700	123400	3700 U
Depreciation	67900	69600	1700 U
Total	294840	301400	6560 U