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 $0.20 per machine-hour	$	22,700
Maintenance	$38,200 plus $1.40 per machine-hour	$	61,400
Supplies	$0.50 per machine-hour	$	10,300
Indirect labor	$94,400 plus $2.10 per machine-hour	$	139,400
Depreciation	$68,400	$	70,100

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.

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.)

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

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.)

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

Answer 1

Activity Variance

Budget for 21000 machine hours

Actual machine hours 19000 hours

Assume Budget is for same output so favourable that in less hour same qty prodcue

Activity Variance = SR ( SH - AH)

Utilities = .20 ( 21000 -19000) = 400 favourable

Maint. = 1.40 ( 21000 -19000) = 2800 F

Supplies = 0.50 ( 21000-19000) = 1000 F

Indirect Labour = 2.10 ( 21000 -19000) = 4200 F

2. Speding Variance ( variable base on actual hours)

utilities = 16700 + .20*19000 - 22700 = 2200 Unfav

Maint = 38200 + 1.40*19000 - 61400 = 3400 Fav.

Suppiles = .50*19000 - 10300 = 800 unfav

Indirect labour = $ 94400 + 2.10*19000 - $ 139400 = 5100 unfav

Depreciation = $ 68400 - $ 70100 = $ 1700 Unfav