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:

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.

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Actual Cost Cost formula $20,600 plus S0.10 per machine-hour $40,000 plus $1.60 per machine-hour S0.30 per machine-hour S130,000 plus S0.70 per machine-hour in March Utilities S24,200 Maintenance $78,100 Supplies S8,400 Indirect labor S149,600 Depreciation ...... S70,000 S71,500