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	$16.40q
Indirect labor	$4,700 + $1.40q
Utilities	$5,200 + $0.60q
Supplies	$1,800 + $0.30q
Equipment depreciation	$18,200 + $3.00q
Factory rent	$8,200
Property taxes	$2,600
Factory administration	$13,100 + $0.70q

The Production Department planned to work 4,200 labor-hours in March; however, it actually worked 4,000 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	67,200
Indirect labor	$	9,760
Utilities	$	8,110
Supplies	$	3,270
Equipment depreciation	$	30,200
Factory rent	$	8,600
Property taxes	$	2,600
Factory administration	$	15,270

Required:

1. Prepare the Production Department’s planning budget for the month.

	Packaging Solutions Corporation Production Department Planning Budget For the Month Ended March 31 Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Total expense $0

2. Prepare the Production Department’s flexible budget for the month.

	Packaging Solutions Corporation Production Department Flexible Budget For the Month Ended March 31 Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Total expense $0

3. Prepare the Production Department’s flexible budget performance report for March, including both the spending and activity variances.

	Packaging Solutions Corporation Production Department Flexible Budget Performance Report For the Month Ended March 31 Actual Results Flexible Budget Planning Budget Labor-hours 4,000 Direct labor $67,200 Indirect labor 9,760 Utilities 8,110 Supplies 3,270 Equipment depreciation 30,200 Factory rent 8,600 Property taxes 2,600 Factory administration 15,270 Total expense $145,010

Answer 1

Part-1 Planning Budget
Particulars	Amount
Hour Worked	4200
Direct Labour	$68,880.00
Indirect Labour	$10,580.00
Utilities	$7,720.00
Supplies	$3,060.00
Equipment Depreciation	$30,800.00
Factory Rent	$8,200.00
Property Tax	$2,600.00
Factory Administration	$16,040.00
Total Expense	$147,880.00

Part-2 Flexible Budget
Particulars	Amount
Hour Worked	4000
Direct Labour	$65,600.00
Indirect Labour	$10,300.00
Utilities	$7,600.00
Supplies	$3,000.00
Equipment Depreciation	$30,200.00
Factory Rent	$8,200.00
Property Tax	$2,600.00
Factory Administration	$15,900.00
Total Expense	$143,400.00

Packaging Solutions Corporation
Flexible Budget Performance Report
Particulars	Actual	Revenue and spending variances		Flexible Budget	Activity Variances		Planning Budget
Hour Worked	4000			4000			4200
Direct Labour	$67,200.00	$1,600.00	U	$65,600.00	$3,280.00	F	$68,880.00
Indirect Labour	$9,760.00	$540.00	F	$10,300.00	$280.00	F	$10,580.00
Utilities	$8,110.00	$510.00	U	$7,600.00	$120.00	F	$7,720.00
Supplies	$3,270.00	$270.00	U	$3,000.00	$60.00	F	$3,060.00
Equipment Depreciation	$30,200.00	$0.00	None	$30,200.00	$600.00	F	$30,800.00
Factory Rent	$8,600.00	$400.00	U	$8,200.00	$0.00	None	$8,200.00
Property Tax	$2,600.00	$0.00	None	$2,600.00	$0.00	None	$2,600.00
Factory Administration	$15,270.00	$630.00	F	$15,900.00	$140.00	F	$16,040.00
Tototal Expense	$145,010.00	$1,610.00	U	$143,400.00	$4,480.00	F	$147,880.00