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 \$16,400 plus \$0.16 per machine-hour \$ 21,400 Maintenance \$38,100 plus \$1.40 per machine-hour \$ 59,900 Supplies \$0.50 per machine-hour \$ 9,800 Indirect labor \$94,900 plus \$1.40 per machine-hour \$ 123,800 Depreciation \$68,500 \$ 70,200

During March, the company worked 18,000 machine-hours and produced 12,000 units. The company had originally planned to work 20,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

1) activity variance :

 Activity variance Utilities 2000*.16 = 320 F Maintenance 2000*1.4 = 2800 F Supplies 2000*.50 = 1000 F Indirect labor 2000*1.4 = 2800 F Depreciation 68500-68500 = 0 None Total 6920 F

2) Spending variance

 Spending variance Utilities (18000*.16+16400-21400) = 2120 U Maintenance (18000*1.4+38100-59900) = 3400 F Supplies (18000*.50-9800) = 800 U Indirect labor (18000*1.4+94900-123800) = 3700 U Depreciation 68500-70200 = 1700 U Total 4920 U