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	$4,200 + $1.60q
Utilities	$5,200 + $0.90q
Supplies	$1,200 + $0.30q
Equipment depreciation	$18,600 + $2.40q
Factory rent	$8,500
Property taxes	$2,700
Factory administration	$13,500 + $0.70q

The Production Department planned to work 4,200 labor-hours in March; however, it actually worked 4,000 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	66,360
Indirect labor	$	10,100
Utilities	$	9,370
Supplies	$	2,670
Equipment depreciation	$	28,200
Factory rent	$	8,900
Property taxes	$	2,700
Factory administration	$	15,670

Required:

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

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

3. Prepare the Production Department’s flexible budget performance report for March, including both the spending and activity variances.

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

	Packaging Solutions Corporation Production Department Planning Budget For the Month Ended March 31    Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Total expense

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

	Packaging Solutions Corporation Production Department Flexible Budget For the Month Ended March 31    Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Total expense

3) Prepare the Production Department’s flexible budget performance report for March, including both the spending and activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

	Packaging Solutions Corporation Production Department Flexible Budget Performance Report For the Month Ended March 31 Actual Results Flexible Budget Planning Budget Labor-hours 4,000          Direct labor $66,360 Indirect labor 10,100 Utilities 9,370 Supplies 2,670 Equipment depreciation 28,200 Factory rent 8,900 Property taxes 2,700 Factory administration 15,670 Total expense $143,970

Answer 1

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1	Packaging solutions corporations
	Production department planning Budget
	For the month ended March 31
	Labor - hours	q	4,200
	Direct labor	$16.20 q	$    68,040
	Indirect labor	[$4200 + ($1.60 X q)]	$    10,920
	Utilities	[$5200+ ($0.90 X q)]	$      8,980
	Supplies	[$1,200 + ($0.30 X q)]	$      2,460
	Equipment depreciation	[$18600 + ($2.40 X q)]	$    28,680
	Factory Rent	$                               8,500	$      8,500
	Property taxes	$                               2,700	$      2,700
	Factory administration	[$13500 + ($0.70 X q)]	$    16,440
	Total expense		$1,46,720
2	Packaging solutions corporations
	Production department flexible Budget
	For the month ended March 31
	Labor - hours	q	4,000
	Direct labor	$16.20 q	$    64,800
	Indirect labor	[$4200 + ($1.60 X q)]	$    10,600
	Utilities	[$5200+ ($0.90 X q)]	$      8,800
	Supplies	[$1,200 + ($0.30 X q)]	$      2,400
	Equipment depreciation	[$18600 + ($2.40 X q)]	$    28,200
	Factory Rent	$                               8,500	$      8,500
	Property taxes	$                               2,700	$      2,700
	Factory administration	[$13500 + ($0.70 X q)]	$    16,300
	Total expense		$1,42,300
3	Packaging solutions corporations
	Production department flexible Budget performance report
	For the month ended March 31
		Actual results	Revenue and Spending Variances		Flexible Budget	Activity Variance		Planning Budget
	Labor - hours	4,000			4,000			4,200
								-
	Direct labor	$                             66,360	$      1,560	U	$   64,800	$      3,240	F	68,040
	Indirect labor	$                             10,100	$          500	F	$   10,600	$          320	F	10,920
	Utilities	$                               9,370	$          570	U	$      8,800	$          180	F	8,980
	Supplies	$                               2,670	$          270	U	$      2,400	$            60	F	2,460
	Equipment depreciation	$                             28,200	$             -	None	$   28,200	$          480	F	28,680
	Factory Rent	$                               8,900	$          400	U	$      8,500	$             -	None	8,500
	Property taxes	$                               2,700	$             -	None	$      2,700	$             -	None	2,700
	Factory administration	$                             15,670	$          630	F	$   16,300	$          140	F	16,440
	Total expense	$                         1,43,970	$      1,670	U	$1,42,300	$      4,420	F	1,46,720