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	$16,700 plus $0.17 per machine-hour	$	21,730
Maintenance	$38,600 plus $1.50 per machine-hour	$	60,900
Supplies	$0.50 per machine-hour	$	9,300
Indirect labor	$94,300 plus $2.00 per machine-hour	$	133,200
Depreciation	$68,300	$	70,000

During March, the company worked 17,000 machine-hours and produced 11,000 units. The company had originally planned to work 19,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Calculate 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.)

1) Activity variance

Utilities
Maintenance
Supplies
Indirect labour
Depreciation
Total

2) Spending variance

Utilities
Maintenance
Supplies
Indirect labour
Depreciation
Total

Answer 1

1
	Activity variance		Planning budget	Flexible budget
Utilities	340	F	19930	19590
Maintenance	3000	F	67100	64100
Supplies	1000	F	9500	8500
Indirect labour	4000	F	132300	128300
Depreciation	0	None	68300	68300
Total	8340	F	297130	288790
2
	Spending variance		Actual cost	Flexible budget
Utilities	2140	U	21730	19590
Maintenance	3200	F	60900	64100
Supplies	800	U	9300	8500
Indirect labour	4900	U	133200	128300
Depreciation	1700	U	70000	68300
Total	6340	U	295130	288790