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: Direct labor $ 16.40 q Indirect labor $ 4,000 + $ 1.70 q Utilities $ 5,600 + $ 0.50 q Supplies $ 1,600 + $ 0.40 q Equipment depreciation $ 18,200 + $ 2.40 q Factory rent $ 8,400 Property taxes $ 2,900 Factory administration $ 13,100 + $ 0.80 q The actual costs incurred in March in the Production Department are listed below: Actual Cost Incurred in March Direct labor $ 72,120 Indirect labor $ 10,830 Utilities $ 8,240 Supplies $ 3,610 Equipment depreciation $ 28,520 Factory rent $ 8,800 Property taxes $ 2,900 Factory administration $ 15,930. Actual Labor Hours 44,300, and Budget Labor Hours 4,500

2. The company actually worked 4,300 labor-hours in March. Complete the Production Department’s flexible budget for the month.

3. Complete the Production Department’s flexible budget performance report for March, including both the spending and activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

1
Planning Budget
Budgeted labor hours	4500
Direct labor	73800	=4500*16.4
Indirect labor	11650	=4000+(4500*1.7)
Utilities	7850	=5600+(4500*0.5)
Supplies	3400	=1600+(4500*0.4)
Equipment Depreciation	29000	=18200+(4500*2.4)
Factory rent	8400
Property taxes	2900
Factory administration	16700	=13100+(4500*0.8)
Total expenses	153700
2
Flexible Budget
Actual labor hours	4300
Direct labor	70520	=4300*16.4
Indirect labor	11310	=4000+(4300*1.7)
Utilities	7750	=5600+(4300*0.5)
Supplies	3320	=1600+(4300*0.4)
Equipment Depreciation	28520	=18200+(4300*2.4)
Factory rent	8400
Property taxes	2900
Factory administration	16540	=13100+(4300*0.8)
Total expenses	149260
3
	Actual	Spending variance		Flexible budget	Activity variance		Planning budget
Labor hours	4300			4300			4500
Direct labor	72120	1600	U	70520	3280	F	73800
Indirect labor	10830	480	F	11310	340	F	11650
Utilities	8240	490	U	7750	100	F	7850
Supplies	3610	290	U	3320	80	F	3400
Equipment Depreciation	28520	0	None	28520	480	F	29000
Factory rent	8800	400	U	8400	0	None	8400
Property taxes	2900	0	None	2900	0	None	2900
Factory administration	15930	610	F	16540	160	F	16700
Total expenses	150950	1690	U	149260	4440	F	153700