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	$16,900 plus $0.20 per machine-hour	$	21,700
Maintenance	$38,400 plus $1.50 per machine-hour	$	54,700
Supplies	$0.50 per machine-hour	$	7,300
Indirect labor	$94,400 plus $1.90 per machine-hour	$	123,800
Depreciation	$67,700	$	69,400

During March, the company worked 13,000 machine-hours and produced 7,000 units. The company had originally planned to work 15,000 machine-hours during March.

Required:

1. Complete the report showing the activity 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.)

2. Complete the 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	Activity variance		planned
		Fixed	variable	budget			budget
Machine hours				13,000			15,000
utilities		16,900	0.2	19500	400	U	19900
maintenance		38,400	1.5	57900	3000	U	60900
supplies			0.5	6500	1000	U	7500
indirect labor		94,400	1.9	119100	3800	U	122900
Depreciation		67,700		67,700	0	N	67,700
totale xpense			4.1	270700	8200	U	278900
				Flexible	Sepnding variance		Actual
		Fixed	variable	budget			budget
Machine hours				13,000			13,000
utilities		16,900	0.2	19500	2200	U	21,700
maintenance		38,400	1.5	57900	3,200	F	54,700
supplies			0.5	6500	800	U	7,300
indirect labor		94,400	1.9	119100	4700	U	123,800
Depreciation		67,700		67,700	1,700	N	69,400
totale xpense			4.1	270700	6200	U	276900