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	$4,100 + $1.60q
Utilities	$5,200 + $0.40q
Supplies	$1,700 + $0.30q
Equipment depreciation	$18,700 + $2.90q
Factory rent	$8,200
Property taxes	$2,600
Factory administration	$13,700 + $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	$	64,330
Indirect labor	$	9,840
Utilities	$	7,230
Supplies	$	3,140
Equipment depreciation	$	30,010
Factory rent	$	8,600
Property taxes	$	2,600
Factory administration	$	16,210

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

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