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	$16.30q
Indirect labor	$4,100 + $1.80q
Utilities	$5,100 + $0.90q
Supplies	$1,700 + $0.40q
Equipment depreciation	$18,100 + $2.60q
Factory rent	$8,300
Property taxes	$2,400
Factory administration	$13,200 + $0.70q

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	$	68,410
Indirect labor	$	11,020
Utilities	$	9,360
Supplies	$	3,630
Equipment depreciation	$	28,760
Factory rent	$	8,700
Property taxes	$	2,400
Factory administration	$	15,440

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.

Garrison 16e Rechecks 2018-12-18

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Answer 1

		planning Budget
		fixed	variable
Direct labor			16.3		70090
indirect labor		4,100	1.8		11840
utilities		5,100	0.9		8970
supplies		1,700	0.4		3420
Equipment depreciation		18,100	2.6		29280
Factory rent		8,300			8,300
property taxes		2,400			2,400
factory administration		13,200	0.7		16210
total expense		52,900	22.7		150510
	the highlighte figures are the answers
2)	labor hours				4,100
		Flexible budget
		fixed	variable
Direct labor			16.3		66830
indirect labor		4,100	1.8		11480
utilities		5,100	0.9		8790
supplies		1,700	0.4		3340
Equipment depreciation		18,100	2.6		28760
Factory rent		8,300			8,300
property taxes		2,400			2,400
factory administration		13,200	0.7		16070
total expense		52,900	22.7		145970

3)		Spending variance
			Actual	spending variance		Flexible	Activity variance		Planned
			result			budget			budget
labor hours			4,100			4,100			4,300
Direct labor			68,410	1,580	U	66830	3260	F	70090
indirect labor			11,020	460	F	11480	360	F	11840
utilities			9,360	570	U	8790	180	F	8970
supplies			3,630	290	U	3340	80	F	3420
Equipment depreciation			28,760	0	N	28760	520	F	29280
Factory rent			8,700	400	U	8,300	0	N	8,300
property taxes			2,400	0	N	2,400	0	N	2,400
factory administration			15,440	630	F	16070	140	F	16210
total expense			147,720	1,750	U	145970	4540	N	150510