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	$4,500 + $1.40q
Utilities	$5,400 + $0.60q
Supplies	$1,200 + $0.20q
Equipment depreciation	$18,300 + $2.90q
Factory rent	$8,100
Property taxes	$2,400
Factory administration	$13,000 + $0.60q

The Production Department planned to work 4,000 labor-hours in March; however, it actually worked 3,800 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	63,520
Indirect labor	$	9,280
Utilities	$	8,190
Supplies	$	2,210
Equipment depreciation	$	29,320
Factory rent	$	8,500
Property taxes	$	2,400
Factory administration	$	14,630

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)	labor hours				4,000
			planning Budget
			fixed	variable
	Direct labor			16.3		65200
	indirect labor		4,500	1.4		10100
	utilities		5,400	0.6		7800
	supplies		1,200	0.2		2000
	Equipment depreciation		18,300	2.9		29900
	Factory rent		8,100			8,100
	property taxes		2,400			2,400
	factory administration		13,000	0.6		15400
	total expense		52,900	22		140900
		the highlighte figures are the answers
		planning budget = fixed component + 8000 hrs*variable component
	2)	labor hours				3,800
			Flexible budget
			fixed	variable
	Direct labor			16.3		61940
	indirect labor		4,500	1.4		9820
	utilities		5,400	0.6		7680
	supplies		1,200	0.2		1960
	Equipment depreciation		18,300	2.9		29320
	Factory rent		8,100			8,100
	property taxes		2,400			2,400
	factory administration		13,000	0.6		15280
	total expense		52,900	22		136500
	3)		Spending variance
				Actual	flexible	Spending variance
	Direct labor			63,520	61940	1,580	U
	indirect labor			9,280	9820	540	F
	utilities			8,190	7680	510	U
	supplies			2,210	1960	250	U
	Equipment depreciation			29,310	29320	0	N
	Factory rent			8,500	8,100	400	U
	property taxes			2,400	2,400	0	N
	factory administration			14,630	15280	650	F
	total expense			138,040	136500	1,540	U