Question

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door...

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 $0.21 per machine-hour $ 23,430
Maintenance $38,500 plus $1.60 per machine-hour $ 69,100
Supplies $0.70 per machine-hour $ 15,900
Indirect labor $94,600 plus $1.70 per machine-hour $ 134,600
Depreciation $68,000 $ 69,700

During March, the company worked 21,000 machine-hours and produced 15,000 units. The company had originally planned to work 23,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Calculate 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.)

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

Calculate 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.)

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

Homework Answers

Answer #1
FAB Corporation
Activity Variances
For the Month Ended March 31
Planning budget Flexible budget Activity variances
Utilities 21630 21210 420 F
Maintenance 75300 72100 3200 F
Supplies 16100 14700 1400 F
Indirect labor 133700 130300 3400 F
Depreciation 68000 68000 0 None
Total 314730 306310 8420 F
FAB Corporation
Spending Variances
For the Month Ended March 31
Actual Flexible budget Spending Variances
Utilities 23430 21210 2220 U
Maintenance 69100 72100 3000 F
Supplies 15900 14700 1200 U
Indirect labor 134600 130300 4300 U
Depreciation 69700 68000 1700 U
Total 312730 306310 6420 U
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