Question

Problem 9-20 Activity and Spending Variances [LO9-1, LO9-2, LO9-3]

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	$16,600 + $0.18 per machine-hour	$	21,640
Maintenance	$38,300 + $1.30 per machine-hour	$	55,500
Supplies	$0.80 per machine-hour	$	14,200
Indirect labor	$94,400 + $1.60 per machine-hour	$	124,100
Depreciation	$68,100	$	69,800

During March, the company worked 16,000 machine-hours and produced 10,000 units. The company had originally planned to work 18,000 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	19840	19480	360	F
Maintenance	61700	59100	2600	F
Supplies	14400	12800	1600	F
Indirect labor	123200	120000	3200	F
Depreciation	68100	68100	0	None
Total	287240	279480	7760	F
2
	Actual cost	Flexible budget	Spending variances
Utilities	21640	19480	2160	U
Maintenance	55500	59100	3600	F
Supplies	14200	12800	1400	U
Indirect labor	124100	120000	4100	U
Depreciation	69800	68100	1700	U
Total	285240	279480	5760	U