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 $0.13 per machine-hour	$	21,070
Maintenance	$38,200 plus $1.10 per machine-hour	$	52,900
Supplies	$0.50 per machine-hour	$	9,300
Indirect labor	$94,800 plus $1.50 per machine-hour	$	124,200
Depreciation	$67,700	$	69,400

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. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Answer 1

	Planning budget	Flexible budget	Activity variances
Utilities	19270	19010	260	F
Maintenance	59100	56900	2200	F
Supplies	9500	8500	1000	F
Indirect labor	123300	120300	3000	F
Depreciation	67700	67700	0	None
Total	278870	272410	6460	F
	Actual	Flexible budget	Spending variances
Utilities	21070	19010	2060	U
Maintenance	52900	56900	4000	F
Supplies	9300	8500	800	U
Indirect labor	124200	120300	3900	U
Depreciation	69400	67700	1700	U
Total	276870	272410	4460	U