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	$16,300 plus $0.20 per machine-hour	$	22,900
Maintenance	$38,700 plus $1.60 per machine-hour	$	70,900
Supplies	$0.40 per machine-hour	$	9,400
Indirect labor	$94,300 plus $1.60 per machine-hour	$	133,600
Depreciation	$67,800	$	69,500

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. Calculate the activity variances for March.

2. Calculate the spending variances for March

Answer 1

1) Actvity varirance

Utilities (24000*0.20+16300)-(22000*0.20+16300)	400 F
Maintenance (24000*1.60+38700)-(22000*1.60+38700)	3200 F
Supplies (24000*0.40)-(22000*0.40)	800 F
Indirect labor (24000*1.60+94300)-(22000*1.60+94300)	3200 F
Depreciation	0 None
Total	7600 F

2) Spending variance

Utilities (22000*0.20+16300)-22900	2200 U
Maintenance (22000*1.60+38700)-70900	3000 F
Supplies (22000*0.40)-9400	600 U
Indirect labor (22000*1.60+94300)-133600	4100 U
Depreciation	1700 U
Total	5600 U