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

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Accounting

You 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$16,700 + $0.12 per machine-hour$20,420
Maintenance$38,600 + $1.40 per machine-hour$54,800
Supplies$0.30 per machine-hour$4,600
Indirect labor$94,400 + $1.10 per machine-hour$112,900
Depreciation$68,500$70,200

During March, the company worked 14,000 machine-hours andproduced 8,000 units. The company had originally planned to work16,000 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
3.5 Ratings (609 Votes)

Answer 1 - Activity variances for March

Budgeted Costs in March for 16000 units Budgeted Costs in March for 14000 units Activity variances
Utilities $                                                             18,620 $                                                             18,380 $                      240 F
Maintenance $                                                             61,000 $                                                             58,200 $                   2,800 F
Supplies $                                                                4,800 $                                                                4,200 $                      600 F
Indirect labor $                                                           112,000 $                                                           109,800 $                   2,200 F
Depreciation $                                                             68,500 $                                                             68,500 $                          -   F
Total $                                                           264,920 $                                                           259,080 $                   5,840 F


Answer 2 - Spending variances for March.For above part, machine hours are taken as 16,000 hours.

Budgeted Costs in March Actual Cost in March Activity variances
Utilities $                              18,380 $                      20,420 $                  2,040 U
Maintenance $                              58,200 $                      54,800 $                  3,400 F
Supplies $                                4,200 $                        4,600 $                     400 U
Indirect labor $                            109,800 $                    112,900 $                  3,100 U
Depreciation $                              68,500 $                      70,200 $                  1,700 U
Total $                            259,080 $                    262,920 $                  3,840 U

For the above part, machine hours are taken as 14,000 hours.

In case of any doubt, please comment.
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