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	$16,600 plus $0.16 per machine-hour	$	20,800
Maintenance	$38,200 plus $1.30 per machine-hour	$	51,500
Supplies	$0.70 per machine-hour	$	10,300
Indirect labor	$94,500 plus $1.30 per machine-hour	$	114,900
Depreciation	$68,000	$	69,700

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. Calculate the activity variances for March.

2. Calculate the spending variances for March.

1). 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.)

FAB Corporation
Activity Variances
For the Month Ended March 31
Utilities
Maintenance
Supplies
Indirect labor
Depreciation
Total

2). Calculate 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

	Planning budget	Flexible budget	Activity Variances
Utilities	19000	18680	320	F
Maintenance	57700	55100	2600	F
Supplies	10500	9100	1400	F
Indirect labor	114000	111400	2600	F
Depreciation	68000	68000	0	None
Total	269200	262280	6920	F
2
	Actual	Flexible budget	Spending Variances
Utilities	20800	18680	2120	U
Maintenance	51500	55100	3600	F
Supplies	10300	9100	1200	U
Indirect labor	114900	111400	3500	U
Depreciation	69700	68000	1700	U
Total	267200	262280	4920	U