DataP9-2
Activity and Spending Variances.
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 determine the following cost formulas and gathered the following
actual costs and data for March.
Description	Cost Formula					Actual Cost
Utilities	$20,600 plus $0.10 per machine hour					$24,200
Maintenance	$40,000 plus $1.60 per machine hour					$78,100
Supplies	$0.30 per machine hour					$8,400
Indirect labor	$130,000 plus $0.70 per machine hour					$149,600
Depreciation	$70,000					$71,500
During March, the company worked 26,000 machine-hours and produced 15,000 units. The company
had originally planned to work 30,000 machine-hours during March.
Required:
1. Prepare a report showing the activity variances for March. Explain what these variances mean.
2. Prepare a report showing the spending variances for March. Explain what these variances mean.