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	$16,400 plus $0.13 per machine-hour	$	21,060
Maintenance	$38,600 plus $1.30 per machine-hour	$	61,000
Supplies	$0.60 per machine-hour	$	13,000
Indirect labor	$94,400 plus $1.40 per machine-hour	$	126,100
Depreciation	$68,100	$	69,800

During March, the company worked 20,000 machine-hours and produced 14,000 units. The company had originally planned to work 22,000 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

1
	Planning budget	Flexible Budget	Activity variances
Utilities	19260	19000	260	F
Maintenance	67200	64600	2600	F
Supplies	13200	12000	1200	F
Indirect labor	125200	122400	2800	F
Depreciation	68100	68100	0	None
Total expense	292960	286100	6860	F
2
	Planning budget	Flexible Budget	Spending variances
Utilities	21060	19000	2060	U
Maintenance	61000	64600	3600	F
Supplies	13000	12000	1000	U
Indirect labor	126100	122400	3700	U
Depreciation	69800	68100	1700	U
Total expense	290960	286100	4860	U