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
