Problem 4 Flexible Budgeting and Performance Evaluation (20 points)

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 companys 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 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:

Overhead Cost	Cost Formula	Actual Costs in March
Utilities	$20,600 + $0.10 per machine-hour	$24,200
Maintenance	$40,000 + $1.60 per machine-hour	$78,100
Supplies	$0.30 per machine-hour	$8,400
Indirect Labor	$130,000 +$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.

Required:

1. Prepare the Planning budget based on planned machine-hours (5 points)
2. Prepare the Flexible budget side by side with the planning budget based on the actual machine-hours worked (5 points)
3. Calculate the activity variances based on your work done in 1) and 2) and categorizing them as favorable or unfavorable (5 points)
4. Calculate the spending variances by comparing the actual costs in March to the flexible budget and categorizing them as favorable or unfavorable (5 points)