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	$4,100 + $1.50q
Utilities	$5,000 + $0.30q
Supplies	$1,200 + $0.40q
Equipment depreciation	$18,600 + $2.40q
Factory rent	$8,000
Property taxes	$2,500
Factory administration	$13,300 + $0.80q

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	$	64,740
Indirect labor	$	9,430
Utilities	$	6,620
Supplies	$	3,050
Equipment depreciation	$	27,960
Factory rent	$	8,400
Property taxes	$	2,500
Factory administration	$	15,810

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