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ou have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door...

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Accounting

ou have just been hired by FAB Corporation, the manufacturer ofa revolutionary new garage door opening device. The president hasasked that you review the company’s costing system and “do what youcan to help us get better control of our manufacturing overheadcosts.” You find that the company has never used a flexible budget,and you suggest that preparing such a budget would be an excellentfirst step in overhead planning and control.

After much effort and analysis, you determined the followingcost formulas and gathered the following actual cost data forMarch:

Cost FormulaActual Cost in March
Utilities$16,300 plus $0.12 per machine-hour$20,620
Maintenance$38,500 plus $1.90 per machine-hour$72,200
Supplies$0.80 per machine-hour$16,600
Indirect labor$94,600 plus $1.80 per machine-hour$133,300
Depreciation$68,000$69,700

During March, the company worked 19,000 machine-hours andproduced 13,000 units. The company had originally planned to work21,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March

Answer & Explanation Solved by verified expert
3.6 Ratings (565 Votes)

1.

FAB Corporation
Flexible Budget
For the Month of March
Flexible Budget Planning Budget Activity Variance
Machine-hours 19000 21000 2000 F
Utilities 18580 18820 240 F
Maintenance 74600 78400 3800 F
Supplies 15200 16800 1600 F
Indirect labor 128800 132400 3600 F
Depreciation 68000 68000 0 None
Total 305180 314420 9240 F

Working:

FAB Corporation
Flexible Budget
For the Month of March
Flexible Budget Planning Budget Activity Variance
Machine-hours 19000 21000 2000 F
Utilities =19000*0.12+16300 =21000*0.12+16300 =D8-C8 F
Maintenance =19000*1.9+38500 =21000*1.9+38500 =D9-C9 F
Supplies =19000*0.8 =21000*0.8 =D10-C10 F
Indirect labor =19000*1.8+94600 =21000*1.8+94600 =D11-C11 F
Depreciation 68000 68000 0 None
Total =SUM(C8:C12) =SUM(D8:D12) =SUM(E8:E12) F

2.

FAB Corporation
Spending Variance Report
For the Month Ended March 31
Actual Results Spending Variance Flexible Budget
Machine-hours 19000 19000
Utilities 20620 2040 U 18580
Maintenance 72200 2400 F 74600
Supplies 16600 1400 U 15200
Indirect labor 133300 4500 U 128800
Depreciation 69700 1700 U 68000
Total 312420 7240 U 305180

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