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	$16,100 plus $0.17 per machine-hour	$	21,470
Maintenance	$38,300 plus $1.40 per machine-hour	$	61,500
Supplies	$0.40 per machine-hour	$	8,200
Indirect labor	$94,800 plus $1.40 per machine-hour	$	125,100
Depreciation	$68,200	$	69,900

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.	Complete the report showing 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.)

      

2.	Complete the report showing 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.)

     

Answer 1

Requirement 1
FAB Corporation
Activity variances report
For the month Ended March
	Planning Budget	Flexible Budget	Activity varainces
Machine hours	21000	19000
Utilities	19670	19330	340	F
Maintenance	67700	64900	2800	F
Supplies	8400	7600	800	F
Indirect labor	124200	121400	2800	F
Depreciation	68200	68200	0	None
Total Expense	288170	281430	6740	F
Requirement 2
FAB Corporation
Spending variances report
For the month Ended March
	Actual Results	Flexible Budget	Spending variances
Machine hours	19000	19000
Utilities	21470	19330	2140	U
Maintenance	61500	64900	3400	F
Supplies	8200	7600	600	U
Indirect labor	125100	121400	70	F
Depreciation	69900	68200	1700	U
Total Expense	286170	281430	4740	U