Question

Question 1 ch 10

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	$16,000 plus $0.12 per machine-hour	$	20,680
Maintenance	$38,600 plus $1.50 per machine-hour	$	68,400
Supplies	$0.70 per machine-hour	$	16,600
Indirect labor	$94,300 plus $2.00 per machine-hour	$	143,200
Depreciation	$68,200	$	69,900

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. 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.)

FAB Corporation

Activity Variances

For the Month Ended March 31

Utilities           

Maintenance               

Supplies                     

Indirect labor               

Depreciation               

Total               

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.)

FAB Corporation

Spending Variances

For the Month Ended March 31

Utilities              

Maintenance                  

Supplies                           

Indirect labor                  

Depreciation                   

Total

Answer 1

1) Activity variance

Utilities (24000-22000)*0.12	240 F
Maintenance (24000-22000)*1.5	3000 F
Supplies (24000-22000)*.70	1400 F
Indirect labor (24000-22000)*2	4000 F
Depreciation	0 None
Total	8640 F

2) Spending variance

Utilities (22000*.12+16000)-20680	2040 U
Maintenance (22000*1.5+38600)-68400	3200 F
Supplies (22000*.70-16600)	1200 U
Indirect labor (22000*2+94300)-143200	4900 U
Depreciation (68200-69900)	1700 U
Total	6640 U