## 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.

2. Complete the report showing the spending variances for March.

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