Solution Mang. Accnting
1. Problem 10-23 Activity and Spending Variances
a. Activity variance for end of March computation:
FAB CorporationActivity VariancesFor the Month Ended March 31 | | | | | | Planning Budget | Flexible Budget | Activity
Variances | Machine-hours (q) | 30,000.00 | 26,000.00 | | | | | | | | Utilities ($20,600 + $0.10q) | $ 23,600.00 | $ 23,200.00 | $ 400.00 | F | Maintenance ($40,000 + $1.60q) | 88,000.00 | 81,600.00 | 6,400.00 | F | Supplies ($0.30q) | 9,000.00 | 7,800.00 | 1,200.00 | F | Indirect labor ($130,000 + $0.70q) | 151,000.00 | 148,200.00 | 2,800.00 | F | Depreciation ($70,000) | 70,000.00 | 70,000.00 | 0.00 | | Total | $341,600.00 | $330,800.00 | $10,800.00 | F |
Explanation: The activity variances are all favorable because the actual activity was less than the planned activity and therefore all of the variable costs should be lower than planned in the original budget.
b. The spending variance computation for March computation FAB CorporationSpending VariancesFor the Month Ended March 31 | | | | | | Flexible Budget | Actual Results | Spending Variances | Machine-hours (q) | 26,000 | 26,000 | | | | | | | | Utilities ($20,600 + $0.10q) | $ 23,200 | $ 24,200 | $1,000 | U | Maintenance ($40,000 + $1.60q) | 81,600 | 78,100 | 3,500 | F | Supplies ($0.30q) | 7,800 | 8,400 | 600 | U | Indirect labor ($130,000 + $0.70q) | 148,200 | 149,600 | 1,400 | U | Depreciation ($70,000) | 70,000 | 71,500 | 1,500 | U | Total | $330,800 | $331,800 | $1,000 | U |
Explanation: An unfavorable spending variance means that the actual cost was greater than what the cost should have been for the actual level of activity. A favorable spending variance means that the actual cost was less than what the cost should have been for the actual level of activity. While this makes intuitive sense, sometimes a favorable variance may not be good.
a. Activity variance for end of March computation:
FAB CorporationActivity VariancesFor the Month Ended March 31 | | | | | | Planning Budget | Flexible Budget | Activity
Variances | Machine-hours (q) | 30,000.00 | 26,000.00 | | | | | | | | Utilities ($20,600 + $0.10q) | $ 23,600.00 | $ 23,200.00 | $ 400.00 | F | Maintenance ($40,000 + $1.60q) | 88,000.00 | 81,600.00 | 6,400.00 | F | Supplies ($0.30q) | 9,000.00 | 7,800.00 | 1,200.00 | F | Indirect labor ($130,000 + $0.70q) | 151,000.00 | 148,200.00 | 2,800.00 | F | Depreciation ($70,000) | 70,000.00 | 70,000.00 | 0.00 | | Total | $341,600.00 | $330,800.00 | $10,800.00 | F |
Explanation: The activity variances are all favorable because the actual activity was less than the planned activity and therefore all of the variable costs should be lower than planned in the original budget.
b. The spending variance computation for March computation FAB CorporationSpending VariancesFor the Month Ended March 31 | | | | | | Flexible Budget | Actual Results | Spending Variances | Machine-hours (q) | 26,000 | 26,000 | | | | | | | | Utilities ($20,600 + $0.10q) | $ 23,200 | $ 24,200 | $1,000 | U | Maintenance ($40,000 + $1.60q) | 81,600 | 78,100 | 3,500 | F | Supplies ($0.30q) | 7,800 | 8,400 | 600 | U | Indirect labor ($130,000 + $0.70q) | 148,200 | 149,600 | 1,400 | U | Depreciation ($70,000) | 70,000 | 71,500 | 1,500 | U | Total | $330,800 | $331,800 | $1,000 | U |
Explanation: An unfavorable spending variance means that the actual cost was greater than what the cost should have been for the actual level of activity. A favorable spending variance means that the actual cost was less than what the cost should have been for the actual level of activity. While this makes intuitive sense, sometimes a favorable variance may not be good.