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 $16,500 plus $0.14 per machine-hour $ 21,660 Maintenance $38,800 plus $1.80 per machine-hour $ 75,800 Supplies $0.80 per machine-hour $ 19,000 Indirect labor $94,500 plus $1.90 per machine-hour $ 141,000 Depreciation $68,300 $ 70,000 During March, the company worked 22,000 machine-hours and produced 16,000 units. The company had originally planned to work 24,000 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	19860	19580	280	F
Maintenance	82000	78400	3600	F
Supplies	19200	17600	1600	F
Indirect labor	140100	136300	3800	F
Depreciation	68300	68300	0	None
Total	329460	320180	9280	F
2
	Actual cost	Flexible budget	Spending variances
Utilities	21660	19580	2080	U
Maintenance	75800	78400	2600	F
Supplies	19000	17600	1400	U
Indirect labor	141000	136300	4700	U
Depreciation	70000	68300	1700	U
Total	327460	320180	7280	U