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 + $1.60q
Utilities	$5,300 + $0.80q
Supplies	$1,700 + $0.30q
Equipment depreciation	$18,600 + $3.00q
Factory rent	$8,600
Property taxes	$2,800
Factory administration	$13,300 + $0.70q

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	$	9,940
Utilities	$	8,970
Supplies	$	3,140
Equipment depreciation	$	30,300
Factory rent	$	9,000
Property taxes	$	2,800
Factory administration	$	15,400

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 Corporation
Planning Budget
For the Month Ended March 31
	Planning Budget
Direct Labour Hour (hrs)	4,100
Direct Labour ($16.20q)	66,420
Indirect Labour ($4200+ $1.60q)	10,760
Utilities (5300+$0.80q)	8,580
Supplies ($1700+ $0.30q)	2,930
Equipment Depreciation ($18,600+$3.00q)	30,900
Factory Rent ($8,600)	8,600
Propery taxes ($2,800)	2,800
Factory administration ($13,300 + $0.70q)	16,170
Total expense	147,160
Packing Solutions Corporation
Flexible Budget
For the Month Ended March 31
	Flexible Budget
Direct Labour Hour (hrs)	3,900
Direct Labour ($16.20q)	63,180
Indirect Labour ($4200+ $1.60q)	10,440
Utilities (5300+$0.80q)	8,420
Supplies ($1700+ $0.30q)	2,870
Equipment Depreciation ($18,600+$3.00q)	30,300
Factory Rent ($8,600)	8,600
Propery taxes ($2,800)	2,800
Factory administration ($13,300 + $0.70q)	16,030
Total expense	142,640
Packing Solutions Corporation
Activity Variances
For the Month Ended March 31
	Planning Budget	Flexible Budget	Activity Variances
Direct Labour Hour	4,100	3,900
Expenses:
Direct Labour ($16.20q)	66,420	63,180	3,240	F
Indirect Labour ($4200+ $1.60q)	10,760	10,440	320	F
Utilities (5300+$0.80q)	8,580	8,420	160	F
Supplies ($1700+ $0.30q)	2,930	2,870	60	F
Equipment Depreciation ($18,600+$3.00q)	30,900	30,300	600	F
Factory Rent ($8,600)	8,600	8,600	0
Propery taxes ($2,800)	2,800	2,800	0
Factory administration ($13,300 + $0.70q)	16170	16030	140	F
Total expense	147,160	142,640	4,520	F
Packing Solutions Corporation
Spending Variances
For the Month Ended March 31
	Flexible Budget	Actual Results	Activity Variances
Direct Labour Hour	3,900	3,900
Expenses:
Direct Labour ($16.20q)	63,180	64,740	1,560	U
Indirect Labour ($4200+ $1.60q)	10,440	9,940	500	F
Utilities (5300+$0.80q)	8,420	8,970	550	U
Supplies ($1700+ $0.30q)	2,870	3,140	270	U
Equipment Depreciation ($18,600+$3.00q)	30,300	30,300	0
Factory Rent ($8,600)	8,600	9,000	400	U
Propery taxes ($2,800)	2,800	2,800	0
Factory administration ($13,300 + $0.70q)	16,030	15,400	630	F
Total expense	142,640	144,290	1,650	U

Packing Solutions Corporation
Flexible Budget performance Report
For the Month Ended March 31
	Planning Budget	Activity Varaiance		Flexible Budget	Spending Varainces		Actual Results
Direct Labour Hour	4,100			3,900			3,900
Expenses:
Direct Labour ($16.20q)	66,420	3,240	F	63,180	1,560	U	64,740
Indirect Labour ($4200+ $1.60q)	10,760	320	F	10,440	500	F	9,940
Utilities (5300+$0.80q)	8,580	160	F	8,420	550	U	8,970
Supplies ($1700+ $0.30q)	2,930	60	F	2,870	270	U	3,140
Equipment Depreciation ($18,600+$3.00q)	30,900	600	F	30,300	0		30,300
Factory Rent ($8,600)	8,600	0	0	8,600	400	U	9,000
Propery taxes ($2,800)	2,800	0	0	2,800	0		2,800
Factory administration ($13,300 + $0.70q)	16,170	140	F	16,030	630	F	15,400
Total expense	147,160	4,520	F	142,640	1,650	U	144,290