Question

Problem 8-23A Flexible Budgets and Spending Variances [LO8-1, LO8-2]

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	$16,700 plus $0.11 per machine-hour	$	20,920
Maintenance	$38,100 plus $1.60 per machine-hour	$	67,100
Supplies	$0.60 per machine-hour	$	13,000
Indirect labor	$94,200 plus $2.00 per machine-hour	$	139,100
Depreciation	$68,300	$	70,000

During March, the company worked 20,000 machine-hours and produced 14,000 units. The company had originally planned to work 22,000 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.)

     

Problem 8-23A Flexible Budgets and Spending Variances [LO8-1, LO8-2] 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 $16,700 plus $0.11 per machine-hour $ 20,920 Maintenance $38,100 plus $1.60 per machine-hour $ 67,100 Supplies $0.60 per machine-hour $ 13,000 Indirect labor $94,200 plus $2.00 per machine-hour $ 139,100 Depreciation $68,300 $ 70,000 During March, the company worked 20,000 machine-hours and produced 14,000 units. The company had originally planned to work 22,000 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

					Flexible
					budget
		machine hours			20,000
		fixed	variable
utilities		16,700	0.11		18900
maintenance		38,100	1.6		70100
supplies			0.6		12000
indirect labor		94,200	2		134200
Depreciation		68,300			68,300
tota			4.31		303500

			Spending variance = actual budget - flexible budget
					Flexible	Actual	Variance
					budget	Budget
		machine hours			20,000	20,000
		fixed	variable
utilities		16,700	0.11		18900	20,920	2020	U
maintenance		38,100	1.6		70100	67,100	3,000	F
supplies			0.6		12000	13,000	1000	U
indirect labor		94,200	2		134200	139,100	4900	U
Depreciation		68,300			68,300	70,000	1,700	U
tota			4.31		303500	310,120	6,620	U