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 + $1.50q
Utilities	$5,700 + $0.60q
Supplies	$1,800 + $0.30q
Equipment depreciation	$18,500 + $2.80q
Factory rent	$8,500
Property taxes	$2,800
Factory administration	$13,100 + $0.90q

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	$	69,600
Indirect labor	$	9,980
Utilities	$	8,730
Supplies	$	3,330
Equipment depreciation	$	30,260
Factory rent	$	8,900
Property taxes	$	2,800
Factory administration	$	16,290

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
Planning Budget
Budgeted labor hours	4400
Direct labor	71280	=4400*16.20
Indirect labor	10800	=4200+(4400*1.5)
Utilities	8340	=5700+(4400*0.6)
Supplies	3120	=1800+(4400*0.3)
Equipment Depreciation	30820	=18500+(4400*2.8)
Factory rent	8500
Property taxes	2800
Factory administration	17060	=13100+(4400*0.9)
Total expenses	152720
2
Flexible Budget
Actual labor hours	4200
Direct labor	68040	=4200*16.2
Indirect labor	10500	=4200+(4200*1.5)
Utilities	8220	=5700+(4200*0.6)
Supplies	3060	=1800+(4200*0.3)
Equipment Depreciation	30260	=18500+(4200*2.8)
Factory rent	8500
Property taxes	2800
Factory administration	16880	=13100+(4200*0.9)
Total expenses	148260
3
	Actual	Spending variance		Flexible budget	Activity variance		Planning budget
Labor hours	4200			4200			4400
Direct labor	69600	1560	U	68040	3240	F	71280
Indirect labor	9980	520	F	10500	300	F	10800
Utilities	8730	510	U	8220	120	F	8340
Supplies	3330	270	U	3060	60	F	3120
Equipment Depreciation	30260	0	None	30260	560	F	30820
Factory rent	8900	400	U	8500	0	None	8500
Property taxes	2800	0	None	2800	0	None	2800
Factory administration	16290	590	F	16880	180	F	17060
Total expenses	149890	1630	U	148260	4460	F	152720