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 + $2.00q Utilities $5,800 + $0.30q Supplies $1,700 + $0.30q Equipment depreciation $18,600 + $2.50q Factory rent $8,500 Property taxes $2,800 Factory administration $13,100 + $0.70q The Production Department planned to work 4,300 labor-hours in March; however, it actually worked 4,100 labor-hours during the month. Its actual costs incurred in March are listed below: Actual Cost Incurred in March Direct labor $ 67,550 Indirect labor $ 11,880 Utilities $ 7,480 Supplies $ 3,200 Equipment depreciation $ 28,850 Factory rent $ 8,900 Property taxes $ 2,800 Factory administration $ 15,340 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

1. PRODUCTION DEPARTMENT PLANNING BUDGET

PLANNED HOURS=4,300

	Planned budget[q=4,300
Direct Labor 16.10q	$69,230[$16.10*4,300]
Indirect labor 4,100+2q	$12,700[4100+2*4,300]
utilities 5800+0.30q	$7,090[$5,800+0.30*4300]
supplies 1700+0.30q	$2,990 [$1700+0.30*4300]
equipment depreciation 18,600+2.50q	$29,350
factory rent	$8,500
property taxes	$2,800
factory adinistration 13,100+0.70q	$16,110
Total cost	$148,770

2) flexible budget for the month. it calculates the budgeted cost for actual hours

	Flexible budget[q=4,100
Direct Labor 16.10q	$66,010[$16.10*4,100]
Indirect labor 4,100+2q	$12,300[4100+2*4,100]
utilities 5800+0.30q	$7,030[$5,800+0.30*4100]
supplies 1700+0.30q	$2,930 [$1700+0.30*4100]
equipment depreciation 18,600+2.50q	$28,850 [$18,600+2.50*4100]
factory rent	$8,500
property taxes	$2,800
factory adinistration 13,100+0.70q	$15,970 [13,100+0.70*4100]
Total cost	$144,390

3) flexible budget performance report for March, i

	Planned budget[q=4,300	activity variance	Flexible budget	Spending variance	Actual results
Direct Labor 16.10q	$69,230[$16.10*4,300]	$3,220 F [$69,230-66,010]	$66,010[$16.10*4,100]	$1,540 U [$66,010-67,550]	$67,550
Indirect labor 4,100+2q	$12,700[4100+2*4,300]	$400 F [$12,700-12,300]	$12,300[4100+2*4,100]	$420 F [$12,300-11,880]	$11,880
utilities 5800+0.30q	$7,090[$5,800+0.30*4300]	$60 F	$7,030[$5,800+0.30*4100]	$450 U [$7,030-7,480]	$7,480
supplies 1700+0.30q	$2,990 [$1700+0.30*4300]	$60 F [2990-2930]	$2,930 [$1700+0.30*4100]	$270 U [$2,930-3,200]	$3,200
equipment depreciation 18,600+2.50q	$29,350	$500 F [$29,350-28,850]	$28,850 [$18,600+2.50*4100]	$0 None [$28,850-28,850]	$28,850
factory rent	$8,500	$0 None	$8,500	$400 U	$8,900
property taxes	$2,800	$0 None	$2,800	$0 None	$2,800
factory adinistration 13,100+0.70q	$16,110	$140 F [$16,110-15,970]	$15,970 [13,100+0.70*4100]	$630 F [$15,970-15,340]	$15,340
Total cost	$148,770	$4,380 F	$144,390	$1,610 U [$146,000-144,390]	$146,000

Actual cost> Flexible cost, variance is unfavorable

Actual cost< flexible cost , variance is favorble

planned cost> flexible cost, variance is favorable

flexible cost> planned cost, variance is unfavorable

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