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	$16,800 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.)

     

Answer 1

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