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	$4,700 + $1.90q
Utilities	$5,300 + $0.40q
Supplies	$1,300 + $0.20q
Equipment depreciation	$18,500 + $2.70q
Factory rent	$8,500
Property taxes	$2,700
Factory administration	$13,300 + $0.70q

The Production Department planned to work 4,400 labor-hours in March; however, it actually worked 4,200 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	70,040
Indirect labor	$	12,240
Utilities	$	7,450
Supplies	$	2,390
Equipment depreciation	$	29,840
Factory rent	$	8,900
Property taxes	$	2,700
Factory administration	$	15,610

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.

Answer 1

1
Production Department Planning Budget
Budgeted labor hours	4400
Direct labor	71720	=4400*16.3
Indirect labor	13060	=4700+(4400*1.9)
Utilities	7060	=5300+(4400*0.4)
Supplies	2180	=1300+(4400*0.2)
Equipment Depreciation	30380	=18500+(4400*2.7)
Factory Rent	8500
Property taxes	2700
Factory administration	16380	=13300+(4400*0.7)
Total expense	151980
2
Production Department Flexible Budget
Actual labor hours	4200
Direct labor	68460	=4200*16.3
Indirect labor	12680	=4700+(4200*1.9)
Utilities	6980	=5300+(4200*0.4)
Supplies	2140	=1300+(4200*0.2)
Equipment Depreciation	29840	=18500+(4200*2.7)
Factory Rent	8500
Property taxes	2700
Factory administration	16240	=13300+(4200*0.7)
Total expense	147540
3
	Actual results	Spending variances		Flexible budget	Activity variances		Planning budget
Labor hours	4200			4200			4400
Direct labor	70040	1580	U	68460	3260	F	71720
Indirect labor	12240	440	F	12680	380	F	13060
Utilities	7450	470	U	6980	80	F	7060
Supplies	2390	250	U	2140	40	F	2180
Equipment Depreciation	29840	0	None	29840	540	F	30380
Factory Rent	8900	400	U	8500	0	None	8500
Property taxes	2700	0	None	2700	0	None	2700
Factory administration	15610	630	F	16240	140	F	16380
Total expense	149170	1630	U	147540	4440	F	151980