Question

# You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door...

 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 \$16,800 plus \$0.16 per machine-hour \$ 21,640 Maintenance \$38,600 plus \$1.60 per machine-hour \$ 62,800 Supplies \$0.70 per machine-hour \$ 13,100 Indirect labor \$94,600 plus \$1.30 per machine-hour \$ 120,200 Depreciation \$67,800 \$ 69,500

 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. Prepare a flexible budget 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. Prepare a 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.)

1) Flexible budget

 Flexible budget Utilities (17000*.16+16800) 19520 Maintenance (17000*1.6+38600) 65800 Supplies (17000*.70) 11900 Indirect labor (17000*1.3+94600) 116700 Depreciation 67800 Total 281720

2) Spending variance

 Flexible budget Actual Spending variance Utilities 19520 21640 2120 U Maintenance 65800 62800 3000 F Supplies 11900 13100 1200 U Indirect labor 116700 120200 3500 U Depreciation 67800 69500 1700 U Total 281720 287240 5520 U

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