Complete question:
You have just been hired by SecuriDoor 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 April:
                                           Actual Cost in April
  Utilities    $16,700 plus $.14 per machine-hour      $
21,020    
  Maintenance   $38,300 plus $1.50 per machine-hour   $
59,100    
  Supplies      $.40 per machine-hour          $
7,000    
  Indirect labor  $94,700 plus $1.80 per machine-hour   $
128,000    
  Depreciation   $68,400    $
70,100   
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.
Solution:
1. The activity variances are shown below:
                                SecuriDoor Corporation
                                    Activity Variances
                          For the Month Ended March 30
                                 Planning Budget    Flexible Budget    Activity  Variances
Machine-hours (q)          18,000                16,000  
Utilities ($16,700 + $.14q)   $
19,220         $
18,940               $
280  
F
Maintenance ($38,300 + $1.50q)  65,300     62,300           3,000  
F
Supplies ($.40q)               7,200                6,400                 800  
F
Indirect labor ($94,700 + $1.80q)  127,100     123,500       3,600  
F
Depreciation ($68,400)    68,400           68,400           0     None
Total                                $
287,220       $
279,540              $
7,680  
F
2. The spending variances are computed below:
                                SecuriDoor Corporation
                               Spending Variances
                           For the Month Ended March 30
                                     Flexible Budget    Actual Results  Spending Variances
  Machine-hours (q)         16,000                16,000  
Utilities ($16,700 + $.14q)   $
18,940         $
21,020           $
2,080  
U
Maintenance ($38,300 + $1.50q)  62,300     59,100        3,200  
F
Supplies ($.40q)               6,400                7,000                600  
U
Indirect labor ($94,700 + $1.80q)   123,500     128,000     4,500  
U
Depreciation ($68,400)     68,400           70,100                1,700  
U
Total                               $
279,540            $
285,220