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	$16,300 plus $0.18 per machine-hour	$	20,800
Maintenance	$38,300 plus $1.70 per machine-hour	$	57,600
Supplies	$0.90 per machine-hour	$	13,300
Indirect labor	$94,500 plus $1.30 per machine-hour	$	114,900
Depreciation	$68,200	$	69,900

During March, the company worked 13,000 machine-hours and produced 7,000 units. The company had originally planned to work 15,000 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

	Planning budget	Flexible budget	Activity variances
Machine hours	15000	13000
Utilities	19000	18640	360	F
Maintenance	63800	60400	3400	F
Supplies	13500	11700	1800	F
Indirect labor	114000	111400	2600	F
Depreciation	68200	68200	0	None
Total expense	278500	270340	8160	F
	Actual	Flexible budget	Spending variances
Machine hours	13000	13000
Utilities	20800	18640	2160	U
Maintenance	57600	60400	2800	F
Supplies	13300	11700	1600	U
Indirect labor	114900	111400	3500	U
Depreciation	69900	68200	1700	U
Total expense	276500	270340	6160	U