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 $16,800 plus $0.12 per machine-hour $ 21,120 Maintenance $38,100 plus $1.70 per machine-hour $ 67,600 Supplies $0.60 per machine-hour $ 12,400 Indirect labor $94,400 plus $2.00 per machine-hour $ 137,300 Depreciation $68,200 $ 69,900 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. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Answer 1

Required:

1. Calculate the activity variances for March.

	Activity variance
Utilities	240 F
Maintenance	3400 F
Supplies	1200 F
Indirect labour	4000 F
Depreciation	0 None
Total	8840 F

2. Calculate the spending variances for March.

	Spending variance
Utilities	19080-21120 = 2040 U
Maintenance	70400-67600 = 2800 F
Supplies	11400-12400 = 1000 U
Indirect labour	132400-137300 = 4900 U
Depreciation	68200-69900 = 1700 U
Total	6840 U