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 $0.20 per machine-hour	$	21,200
Maintenance	$38,100 plus $1.30 per machine-hour	$	51,400
Supplies	$0.40 per machine-hour	$	5,800
Indirect labor	$94,200 plus $1.90 per machine-hour	$	123,600
Depreciation	$67,500	$	69,200

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.	Prepare a flexible budget 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

2.	Prepare a 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