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 Formula Actual Cost in March
Utilities $16,300 plus $0.14 per machine-hour $ 20,900
Maintenance $38,600 plus $1.10 per machine-hour $ 54,400
Supplies $0.60 per machine-hour $ 11,800
Indirect labor $94,800 plus $1.30 per machine-hour $ 121,700
Depreciation $68,300 $ 70,000
During March, the company worked 18,000 machine-hours andproduced 12,000 units. The company had originally planned to work20,000 machine-hours during March.
Required:
1. Calculate the activity variances for March.
2. Calculate the spending variances for March.

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Solution 1Activity Variances Fab CorporationFor the month ended March 31ParticularsFlexible BudgetPlanning See Answer

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Transcribed Image Text

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 MarchUtilities$16,300 plus $0.14 per machine-hour$20,900Maintenance$38,600 plus $1.10 per machine-hour$54,400Supplies$0.60 per machine-hour$11,800Indirect labor$94,800 plus $1.30 per machine-hour$121,700Depreciation$68,300$70,000During March, the company worked 18,000 machine-hours andproduced 12,000 units. The company had originally planned to work20,000 machine-hours during March.Required:1. Calculate the activity variances for March.2. Calculate the spending variances for March.

	Cost Formula	Actual Cost in March
Utilities	$16,300 plus $0.14 per machine-hour	$	20,900
Maintenance	$38,600 plus $1.10 per machine-hour	$	54,400
Supplies	$0.60 per machine-hour	$	11,800
Indirect labor	$94,800 plus $1.30 per machine-hour	$	121,700
Depreciation	$68,300	$	70,000