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 $16,100 + $0.14 per machine-hour $ 20,140

Maintenance $38,900 + $2.10 per machine-hour $ 66,300

Supplies $0.50 per machine-hour $ 7,800

Indirect labor $94,100 + $1.50 per machine-hour $ 119,000

Depreciation $67,600 $ 69,300

During March, the company worked 14,000 machine-hours and produced 8,000 units. The company had originally planned to work 16,000 machine-hours during March. Required:

1. Prepare a flexible budget for March.

Machine Hours

Utilities

Maintenance

Supplies

Indirect Labor

Depreciation

Total

2. Prepare a report showing the spending variances for March.

Utilities

Maintenance

Supplies

Indirect Labor

Depreciation

Total

Answer 1