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	$16.50q
Indirect labor	$4,500 + $1.40q
Utilities	$5,100 + $0.70q
Supplies	$1,400 + $0.30q
Equipment depreciation	$18,400 + $2.90q
Factory rent	$8,400
Property taxes	$2,600
Factory administration	$13,800 + $0.60q

The Production Department planned to work 4,400 labor-hours in March; however, it actually worked 4,200 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	70,920
Indirect labor	$	9,840
Utilities	$	8,570
Supplies	$	2,930
Equipment depreciation	$	30,580
Factory rent	$	8,800
Property taxes	$	2,600
Factory administration	$	15,670

Required:

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

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

3. Calculate the spending variances for all expense items.

Answer 1

Planning budget
			4400 DLH
Directt labor			72600
Indirect labor			10660
utilities			8180
Supplies\			2720
equipment depreciation			31160
Factory rent			8400
Property taxes			2600
factory admin			16440
Total cost			152760
Flexible budget
			4200 DLH
Directt labor			69300
Indirect labor			10380
utilities			8040
Supplies\			2660
equipment depreciation			30580
Factory rent			8400
Property taxes			2600
factory admin			16320
Total cost			148280
Spending variance
			Actual	Spending variance		Flexible
Directt labor			70920	1620	U	69300
Indirect labor			9840	540	F	10380
utilities			8570	530	U	8040
Supplies\			2930	270	U	2660
equipment depreciation			30580	0		30580
Factory rent			8800	400	U	8400
Property taxes			2600	0		2600
factory admin			15670	650	F	16320
Total cost			149910	1630	U	148280