Wednesday, 1 April 2015

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

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 $0.13 per machine-hour $ 20,920    
  Maintenance   $38,800 plus $1.20 per machine-hour $ 61,400    
  Supplies   $0.90 per machine-hour $ 21,400    
  Indirect labor   $94,100 plus $1.50 per machine-hour $ 131,000    
  Depreciation   $67,600 $ 69,300    



During March, the company worked 22,000 machine-hours and produced 16,000 units. The company had originally planned to work 24,000 machine-hours during March.


Required:
1.
Complete the report showing the activity variances for March.


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2. Complete the report showing the spending variances for March.
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Explanation:
1.
The activity variances are shown below:


FAB Corporation
Activity Variances
For the Month Ended March 31
  Flexible Budget Planning Budget Activity
Variances
  Machine-hours (q)   22,000     24,000         
    



     
  Utilities ($16,000 + $0.13q) $ 18,860   $ 19,120   $ 260   F
  Maintenance ($38,800 + $1.20q)   65,200     67,600     2,400   F
  Supplies ($0.90q)   19,800     21,600     1,800   F
  Indirect labor ($94,100 + $1.50q)   127,100     130,100     3,000   F
  Depreciation ($67,600)   67,600     67,600     0   None
    





 
  Total $ 298,560   $ 306,020   $ 7,460   F
 











 



2.
The spending variances are computed below:


FAB Corporation
Spending Variances
For the Month Ended March 31
  Actual Results Flexible Budget Spending Variances
  Machine-hours (q)   22,000     22,000         
    



     
  Utilities ($16,000 + $0.13q) $ 20,920   $ 18,860   $ 2,060   U
  Maintenance ($38,800 + $1.20q)   61,400     65,200     3,800   F
  Supplies ($0.90q)   21,400     19,800     1,600   U
  Indirect labor ($94,100 + $1.50q)   131,000     127,100     3,900   U
  Depreciation ($67,600)   69,300     67,600     1,700   U
   





 
  Total $ 304,020   $ 298,560   $ 5,460   U