Question

Packaging Solutions Corporation manufactures and sells a wide variety of packaging products. Performance reports are prepared monthly for each department. The planning budget and flexible budget for the Production Department are based on the following formulas, where q is the number of labor-hours worked in a month:

	Cost Formulas
Direct labor	$16.20q
Indirect labor	$4,100 + $1.50q
Utilities	$5,400 + $0.90q
Supplies	$1,800 + $0.40q
Equipment depreciation	$18,300 + $2.40q
Factory rent	$8,100
Property taxes	$2,400
Factory administration	$13,500 + $0.60q

The Production Department planned to work 4,300 labor-hours in March; however, it actually worked 4,100 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	67,980
Indirect labor	$	9,730
Utilities	$	9,660
Supplies	$	3,730
Equipment depreciation	$	28,140
Factory rent	$	8,500
Property taxes	$	2,400
Factory administration	$	15,310

Required:

1. Prepare the Production Department’s planning budget for the month.

2. Prepare the Production Department’s flexible budget for the month.

3. Calculate the spending variances for all expense items

Answer 1

1.

Packaging Solutions: Production Department Planning Budget For the month ended March 31
Number of Labor Hours	4,300
Direct labor ( 4,300 x $ 16.20)	$ 69,660
Indirect labor ( $ 4,100 + 4,300 x $ 1.50)	10,550
Utilities ( $ 5,400 + 4,300 x $ 0.90)	9,270
Supplies ( $ 1,800 + 4,300 x $ 0.40)	3,520
Equipment depreciation ( $ 18,300 + 4,300 x $ 2.40)	28,620
Factory rent	8,100
Property taxes	2,400
Factory administration	16,080
Total Expenses	$ 148,200

2.

Packaging Solutions Corporation : Production Department Flexible Budget For the month ended March 31
Number of Labor Hours	4,100
Direct labor ( 4,100 x $ 16.20)	$ 66,420
Indirect labor ( $ 4,100 + 4,100 x $ 1.50)	10,250
Utilities ( $ 5,400 + 4,100 x $ 0.90 )	9,090
Supplies ( $ 1,800 + 4,100 x $ 0.40)	3,440
Equipment depreciation ( $ 18,300 + 4,100 x $ 2.40)	28,140
Factory rent	8,100
Property taxes	2,400
Factory administration ( $ 13,500 + 4,100 x $ 0.60)	15,960
Total Expenses	$ 143,800

3.

Packaging Solutions Corporation : Production Department Flexible Budget Performance Report For the month ended March 31
	Spending Variances
Direct Labor	$ 1,560 U
Indirect Labor	520 F
Utilities	570 U
Supplies	290 U
Equipment Depreciation	None
Factory Rent	400 U
Property Taxes	None
Factory Administration	650 F
Total Expenses	1,650 U