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	$16.10q
Indirect labor	$4,400 + $1.90q
Utilities	$5,500 + $0.90q
Supplies	$1,700 + $0.20q
Equipment depreciation	$18,000 + $2.70q
Factory rent	$8,500
Property taxes	$2,700
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	$	64,330
Indirect labor	$	11,370
Utilities	$	9,580
Supplies	$	2,730
Equipment depreciation	$	28,530
Factory rent	$	8,900
Property taxes	$	2,700
Factory administration	$	15,400

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

Answer 1

Production Department’s flexible budget performance report
	Actual Cost	Budgeted Cost	Variance
Labor Hours	$        3,900.00	$        3,900.00
Direct labor	$    64,330.00	$      62,790.00	$1,540.00	U
Indirect labor	$    11,370.00	$      11,810.00	$    440.00	F
Utilities	$     9,580.00	$        9,010.00	$ 570.00	U
Supplies	$     2,730.00	$        2,480.00	$ 250.00	U
Equipment depreciation	$    28,530.00	$      28,530.00	$           -	None
Factory rent	$     8,900.00	$        8,500.00	$ 400.00	U
Property taxes	$     2,700.00	$        2,700.00	$           -	None
Factory administration	$    15,400.00	$      16,030.00	$    630.00	F
Total Costs	$ 1,43,540.00	$ 1,41,850.00	$1,690.00	U