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	$16,700 plus $0.15 per machine-hour	$	21,650
Maintenance	$38,100 plus $2.00 per machine-hour	$	73,900
Supplies	$0.40 per machine-hour	$	8,200
Indirect labor	$95,000 plus $1.20 per machine-hour	$	121,100
Depreciation	$67,900	$	69,600

During March, the company worked 19,000 machine-hours and produced 13,000 units. The company had originally planned to work 21,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

FAB Corporation
Activity Variances
For the Month Ended March 31
Utilities
Maintenance
Supplies
Indirect labor
Depreciation
Total

FAB Corporation
Spending Variances
For the Month Ended March 31
Utilities
Maintenance
Supplies
Indirect labor
Depreciation
Total

Answer 1

1) Activity variance

FAB Corporation Activity Variances For the Month Ended March 31 Utilities (2000*.15) 300 F Maintenance (2000*2) 4000 F Supplies (2000*.40) 800 F Indirect labor (2000*1.20) 2400 F Depreciation 0 None Total 7500 F

Spending variance

FAB Corporation Spending Variances For the Month Ended March 31 Utilities (19000*.15+16700)-21650 2100 U Maintenance (19000*2+38100)-73900 2200 F Supplies (19000*.40-8200) 600 U Indirect labor (19000*1.2+95000-121100) 3300 U Depreciation (67900-69600) 1700 U Total 5500 U