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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 andanalysis, you determined the following cost formulas and gatheredthe following actual cost data for March:

Cost FormulaActual Cost in March
  Utilities  $16,900 plus $0.21 per machine-hour$23,950    
  Maintenance  $38,100 plus $1.80 per machine-hour$76,900    
  Supplies  $0.60 per machine-hour$14,800    
  Indirect labor  $94,500 plus $1.60 per machine-hour$135,400    
  Depreciation  $67,500$69,200    


During March, the company worked 23,000 machine-hours andproduced 17,000 units. The company had originally planned to work25,000 machine-hours during March.

Answer & Explanation Solved by verified expert
4.3 Ratings (666 Votes)

Flexible planned activity
budget Budget variance
machine hours 23,000 25,000
fixed variable
utilities 16,900 0.21 21730 22150 420 F
maintenance 38,100 1.8 79500 83100 3600 F
supplies 0.6 13800 15000 1200 F
indirect labor 94,500 1.6 131300 134500 3200 F
Depreciation 67,500 67,500 67,500 0 N
tota 217,000 4.21 313830 322250 8420 F
cost formula = machine hours * variable cost per mh + fixed cost
Spending variance = actual budget - flexible budget
Flexible Actual Spending
budget Budget variance
machine hours 23,000 23,000
fixed variable
utilities 16,900 0.21 21730 23,950 2220 U
maintenance 38,100 1.8 79500 76,900 2,600 F
supplies 0.6 13800 14,800 1000 U
indirect labor 94,500 1.6 131300 135,400 4100 U
Depreciation 67,500 67,500 69,200 1,700 U
tota 4.21 313830 320,250 6,420 U

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