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 $16,500 + $0.19 per machine-hour $ 21,530 Maintenance $38,000 + $1.50 per machine-hour $ 57,300 Supplies $0.60 per machine-hour $ 10,000 Indirect labor $94,600 + $1.90 per machine-hour $ 127,800 Depreciation $67,700 $ 69,400 During March, the company worked 15,000 machine-hours and produced 9,000 units. The company had originally planned to work 17,000 machine-hours during March. Required: 1. Prepare a flexible budget for March. 2. Prepare a report showing the spending variances for March.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Problem 9-23 (Algo) Flexible Budgets and Spending Variances [LO9-1, LO9-2]
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
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 | $16,500 + $0.19 per machine-hour | $ 21,530 |
| Maintenance | $38,000 + $1.50 per machine-hour | $ 57,300 |
| Supplies | $0.60 per machine-hour | $ 10,000 |
| Indirect labor | $94,600 + $1.90 per machine-hour | $ 127,800 |
| $67,700 | $ 69,400 |
During March, the company worked 15,000 machine-hours and produced 9,000 units. The company had originally planned to work 17,000 machine-hours during March.
Required:
1. Prepare a flexible budget for March.
2. Prepare a report showing the spending variances for March.
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