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	$16.40q
Indirect labor	$4,400 + $1.40q
Utilities	$5,600 + $0.60q
Supplies	$1,600 + $0.30q
Equipment depreciation	$18,700 + $2.80q
Factory rent	$8,400
Property taxes	$2,800
Factory administration	$13,300 + $0.60q

The Production Department planned to work 4,100 labor-hours in March; however, it actually worked 3,900 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	65,560
Indirect labor	$	9,320
Utilities	$	8,450
Supplies	$	3,040
Equipment depreciation	$	29,620
Factory rent	$	8,800
Property taxes	$	2,800
Factory administration	$	14,990

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

Solution 1:

Packaging Solutions Corporation
Production Department Planning Budget
For the month ended March 31
Particulars	Details	Amount
Direct labor hours		4100
Direct labor	4100*$16.40	$67,240.00
Indirect labor	$4,400 + $1.40*4100	$10,140.00
Utilities	$5,600 + $0.60*4100	$8,060.00
Supplies	1,600 + $0.30*4100	$2,830.00
Equipment Depreciation	$18,700 + $2.80*4100	$30,180.00
Factory Rent		$8,400.00
Property Taxes		$2,800.00
Factory Administration	$13,300 + $0.60*4000	$15,760.00
Total Expense		$145,410.00

Solution 2:

Packaging Solutions Corporation
Production Department Flexible Budget
For the month ended March 31
Particulars	Details	Amount
Direct labor hours		3900
Direct labor	3900*$16.40	$63,960.00
Indirect labor	$4,400 + $1.40*3900	$9,860.00
Utilities	$5,600 + $0.60*3900	$7,940.00
Supplies	1,600 + $0.30*3900	$2,770.00
Equipment Depreciation	$18,700 + $2.80*3900	$29,620.00
Factory Rent		$8,400.00
Property Taxes		$2,800.00
Factory Administration	$13,300 + $0.60*3900	$15,640.00
Total Expense		$140,990.00

Solution 3:

Packagining Solution Corporation
Flexible Budget Performance Report
For the month ended March 31
Particulars	Actual results	Flexible Budget Variance		Flexible Budget	Activity Variances		Planning Budget
Nos of units	3900			3900			4100
Direct labor	$65,560.00	$1,600.00	U	$63,960.00	$3,280.00	F	$67,240.00
Indirect labor	$9,320.00	$540.00	F	$9,860.00	$280.00	F	$10,140.00
Utilities	$8,450.00	$510.00	U	$7,940.00	$120.00	F	$8,060.00
Supplies	$3,040.00	$270.00	U	$2,770.00	$60.00	F	$2,830.00
Equipment Depreciation	$29,620.00	$0.00	None	$29,620.00	$560.00	F	$30,180.00
Factory Rent	$8,800.00	$400.00	U	$8,400.00	$0.00	None	$8,400.00
Property Taxes	$2,800.00	$0.00	None	$2,800.00	$0.00	None	$2,800.00
Factory Administration	$14,990.00	$650.00	F	$15,640.00	$120.00	F	$15,760.00
Total expenses	$142,580.00	$1,590.00	U	$140,990.00	$4,420.00	F	$145,410.00