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 $16,600 + $0.13 per machine-hour $ 20,740 Maintenance $38,200 + $1.10 per machine-hour $ 51,800 Supplies $0.40 per machine-hour $ 7,000 Indirect labor $94,000 + $1.90 per machine-hour $ 129,100 Depreciation $67,700 $ 69,400     During March, the company worked 16,000 machine-hours and produced 10,000 units. The company had originally planned to work 18,000 machine-hours during March.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 $16,600 + $0.13 per machine-hour $ 20,740
Maintenance $38,200 + $1.10 per machine-hour $ 51,800
Supplies $0.40 per machine-hour $ 7,000
Indirect labor $94,000 + $1.90 per machine-hour $ 129,100
Depreciation $67,700 $ 69,400
 

 

During March, the company worked 16,000 machine-hours and produced 10,000 units. The company had originally planned to work 18,000 machine-hours during March.

 

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

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