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 $16,400 plus $0.13 per machine-hour $ 21,060 Maintenance $38,700 plus $1.80 per machine-hour $ 72,100 Supplies $0.80 per machine-hour $ 17,400 Indirect labor $94,500 plus $1.70 per machine-hour $ 132,800 Depreciation $67,800 $ 69,500 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. Calculate the activity variances for March. 2. Calculate the spending variances for March.

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	$16,400 plus $0.13 per machine-hour	$	21,060
Maintenance	$38,700 plus $1.80 per machine-hour	$	72,100
Supplies	$0.80 per machine-hour	$	17,400
Indirect labor	$94,500 plus $1.70 per machine-hour	$	132,800
Depreciation	$67,800	$	69,500

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. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Answer 1

1
	Planning budget	Flexible budget	Activity variances
Utilities	19260	19000	260	F
Maintenance	78300	74700	3600	F
Supplies	17600	16000	1600	F
Indirect labor	131900	128500	3400	F
Depreciation	67800	67800	0	None
Total	314860	306000	8860	F
2
	Actual cost	Flexible budget	Spending variances
Utilities	21060	19000	2060	U
Maintenance	72100	74700	2600	F
Supplies	17400	16000	1400	U
Indirect labor	132800	128500	4300	U
Depreciation	69500	67800	1700	U
Total	312860	306000	6860	U