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	$16,000 plus $0.21 per machine-hour	$	21,370
Maintenance	$38,300 plus $1.40 per machine-hour	$	55,900
Supplies	$0.50 per machine-hour	$	8,300
Indirect labor	$94,400 plus $1.10 per machine-hour	$	114,000
Depreciation	$68,400	$	70,100

During March, the company worked 15,000 machine-hours and produced 9,000 units. The company had originally planned to work 17,000 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 CorporationFlexible Budget

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

1
	Planning budget	Flexible budget	Activity variances
Utilities	19570	19150	420	F
Maintenance	62100	59300	2800	F
Supplies	8500	7500	1000	F
Indirect labor	113100	110900	2200	F
Depreciation	68400	68400	0	None
Total	271670	265250	6420	F
2
	Actual cost	Flexible budget	Spending variances
Utilities	21370	19150	2220	U
Maintenance	55900	59300	3400	F
Supplies	8300	7500	800	U
Indirect labor	114000	110900	3100	U
Depreciation	70100	68400	1700	U
Total	269670	265250	4420	U