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	$16.60q
Indirect labor	$4,200 + $1.50q
Utilities	$5,200 + $0.80q
Supplies	$1,700 + $0.40q
Equipment depreciation	$18,200 + $3.00q
Factory rent	$8,600
Property taxes	$2,500
Factory administration	$13,300 + $0.80q

The Production Department planned to work 4,500 labor-hours in March; however, it actually worked 4,300 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	73,020
Indirect labor	$	10,130
Utilities	$	9,190
Supplies	$	3,710
Equipment depreciation	$	31,100
Factory rent	$	9,000
Property taxes	$	2,500
Factory administration	$	16,130

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

Packing solutions corporations
Production department planning Budget
For the month ended March 31
Labor - hours	q	4,500
Direct labor	$16.60 q	$    74,700
Indirect labor	[$4,200 + ($1.50 X q)]	$    10,950
Utilities	[$5,200 + ($0.80 X q)]	$      8,800
Supplies	[$1,700 + ($0.40 X q)]	$      3,500
Equipment depreciation	[$18,200 + ($3.00 X q)]	$    31,700
Factory Rent	$                               8,600	$      8,600
Property taxes	$                               2,500	$      2,500
Factory administration	[$13,300 + ($0.80 X q)]	$    16,900
Total expense		$1,57,650
Packing solutions corporations
Production department flexible Budget
For the month ended March 31
Labor - hours	q	4,300
Direct labor	$16.60 q	$    71,380
Indirect labor	[$4,200 + ($1.50 X q)]	$    10,650
Utilities	[$5,200 + ($0.80 X q)]	$      8,640
Supplies	[$1,700 + ($0.40 X q)]	$      3,420
Equipment depreciation	[$18,200 + ($3.00 X q)]	$    31,100
Factory Rent	$                               8,600	$      8,600
Property taxes	$                               2,500	$      2,500
Factory administration	[$13,300 + ($0.80 X q)]	$    16,740
Total expense		$1,53,030
Packing solutions corporations
Production department flexible Budget performance report
For the month ended March 31
	Actual results	Revenue and Spending Variances		Flexible Budget	Activity Variance		Planning Budget
Labor - hours	4300			4,300			4,500
Direct labor	$                             73,020	$      1,640	U	$          71,380	$    3,320	F	$    74,700
Indirect labor	$                             10,130	$          520	F	$          10,650	$        300	F	$    10,950
Utilities	$                               9,190	$          550	U	$            8,640	$        160	F	$      8,800
Supplies	$                               3,710	$          290	U	$            3,420	$          80	F	$      3,500
Equipment depreciation	$                             31,100	$             -	None	$          31,100	$        600	F	$    31,700
Factory Rent	$                               9,000	$          400	U	$            8,600	$           -	F	$      8,600
Property taxes	$                               2,500	$             -	None	$            2,500	$           -	F	$      2,500
Factory administration	$                             16,130	$          610	F	$          16,740	$        160	F	$    16,900
Total expense	$                         1,54,780	$      1,750	U	$      1,53,030	$    4,620	F	$1,57,650