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	$16.60q
Indirect labor	$4,600 + $1.60q
Utilities	$5,700 + $0.90q
Supplies	$1,200 + $0.20q
Equipment depreciation	$18,800 + $2.90q
Factory rent	$8,100
Property taxes	$2,500
Factory administration	$13,200 + $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	$	66,380
Indirect labor	$	10,340
Utilities	$	9,780
Supplies	$	2,230
Equipment depreciation	$	30,110
Factory rent	$	8,500
Property taxes	$	2,500
Factory administration	$	15,710

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
Planning Budget
Budgeted labor hours	4100
Direct labor	68060	=4100*16.6
Indirect labor	11160	=4600+(4100*1.6)
Utilities	9390	=5700+(4100*0.9)
Supplies	2020	=1200+(4100*0.2)
Equipment Depreciation	30690	=18800+(4100*2.9)
Factory rent	8100
Property taxes	2500
Factory administration	16480	=13200+(4100*0.8)
Total expenses	148400
2
Flexible Budget
Actual labor hours	3900
Direct labor	64740	=3900*16.6
Indirect labor	10840	=4600+(3900*1.6)
Utilities	9210	=5700+(3900*0.9)
Supplies	1980	=1200+(3900*0.2)
Equipment Depreciation	30110	=18800+(3900*2.9)
Factory rent	8100
Property taxes	2500
Factory administration	16320	=13200+(3900*0.8)
Total expenses	143800
3
	Actual	Spending variance		Flexible budget	Activity variance		Planning budget
Labor hours	3900			3900			4100
Direct labor	66380	1640	U	64740	3320	F	68060
Indirect labor	10340	500	F	10840	320	F	11160
Utilities	9780	570	U	9210	180	F	9390
Supplies	2230	250	U	1980	40	F	2020
Equipment Depreciation	30110	0	None	30110	580	F	30690
Factory rent	8500	400	U	8100	0	None	8100
Property taxes	2500	0	None	2500	0	None	2500
Factory administration	15710	610	F	16320	160	F	16480
Total expenses	145550	1750	U	143800	4600	F	148400