In: Accounting
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 | $16.30q |
Indirect labor | $4,000 + $1.70q |
Utilities | $5,600 + $0.70q |
Supplies | $1,500 + $0.30q |
Equipment depreciation | $18,200 + $3.00q |
Factory rent | $8,600 |
Property taxes | $2,500 |
Factory administration | $13,200 + $0.60q |
The Production Department planned to work 4,500 labor-hours in March; however, it actually worked 4,300 labor-hours during the month. Its actual costs incurred in March are listed below:
Actual Cost Incurred in March | |||
Direct labor | $ | 71,670 | |
Indirect labor | $ | 10,830 | |
Utilities | $ | 9,140 | |
Supplies | $ | 3,060 | |
Equipment depreciation | $ | 31,100 | |
Factory rent | $ | 9,000 | |
Property taxes | $ | 2,500 | |
Factory administration | $ | 15,130 | |
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.
Ans.
1.
Packaging Solutions Corporation | |
Production Department Flexible Budget | |
For the Month Ended March 31 | |
Direct labor | $ 73,350.00 |
Indirect labor | $ 11,650.00 |
Utilities | $ 8,750.00 |
Supplies | $ 2,850.00 |
Equipment depreciation | $ 31,700.00 |
Factory rent | $ 8,600.00 |
Property taxes | $ 2,500.00 |
Factory administration | $ 15,900.00 |
Total expense | $ 155,300.00 |
Explanation:
Direct labor ($16.30 × 4,500) = $73,350
Indirect labor ($4,000 + ($1.70 × 4,500)) = $11,650
Utilities ($5,600 + ($0.70 × 4,500)) = $8,750
Supplies ($1,500 + ($0.30 × 4,500)) = $2,850
Equipment depreciation ($18,200 + ($3.00 × 4,500)) = $31,700
Factory administration ($13,200 + ($0.60 × 4,500)) = $15,900
2.
Packaging Solutions Corporation | |
Production Department Flexible Budget | |
For the Month Ended March 31 | |
Direct labor | $ 70,090.00 |
Indirect labor | $ 11,310.00 |
Utilities | $ 8,610.00 |
Supplies | $ 2,790.00 |
Equipment depreciation | $ 31,100.00 |
Factory rent | $ 8,600.00 |
Property taxes | $ 2,500.00 |
Factory administration | $ 15,780.00 |
Total expense | $ 150,780.00 |
Explanation:
Direct labor ($16.30 × 4,300) = $70,090
Indirect labor ($4,000 + ($1.70 × 4,300)) = $11,310
Utilities ($5,600 + ($0.70 × 4,300)) = $8,610
Supplies ($1,500 + ($0.30 × 4,300)) = $2,790
Equipment depreciation ($18,200 + ($3.00 × 4,300)) = $31,100
Factory administration ($13,200 + ($0.60 × 4,300)) = $15,780
3.
Packaging Solutions Corporation | ||||
Production Department Flexible Budget Performance Report | ||||
For the Month Ended March 31 | ||||
Activity Variances | Spending Variances | |||
Direct labor | $ 3,260.00 | U | $ 1,580.00 | U |
Indirect labor | $ 340.00 | U | $ 480.00 | F |
Utilities | $ 140.00 | U | $ 530.00 | U |
Supplies | $ 60.00 | U | $ 270.00 | U |
Equipment depreciation | $ 600.00 | U | $ - | None |
Factory rent | $ - | None | $ 400.00 | U |
Property taxes | $ - | None | $ - | None |
Factory administration | $ 120.00 | U | $ 650.00 | F |
Total expense | $ 4,520.00 | U | $ 1,650.00 | U |
Working Note :
Packaging Solutions Corporation | |||||||
Production Department Flexible Budget Performance Report | |||||||
For the Month Ended March 31 | |||||||
Planning Budget | Activity Variances | Flexible Budget | Spending Variances | Actual Results | |||
Direct labor | $ 73,350.00 | $ 3,260.00 | U | $ 70,090.00 | $ 1,580.00 | U | $ 71,670.00 |
Indirect labor | $ 11,650.00 | $ 340.00 | U | $ 11,310.00 | $ 480.00 | F | $ 10,830.00 |
Utilities | $ 8,750.00 | $ 140.00 | U | $ 8,610.00 | $ 530.00 | U | $ 9,140.00 |
Supplies | $ 2,850.00 | $ 60.00 | U | $ 2,790.00 | $ 270.00 | U | $ 3,060.00 |
Equipment depreciation | $ 31,700.00 | $ 600.00 | U | $ 31,100.00 | $ - | None | $ 31,100.00 |
Factory rent | $ 8,600.00 | $ - | None | $ 8,600.00 | $ 400.00 | U | $ 9,000.00 |
Property taxes | $ 2,500.00 | $ - | None | $ 2,500.00 | $ - | None | $ 2,500.00 |
Factory administration | $ 15,900.00 | $ 120.00 | U | $ 15,780.00 | $ 650.00 | F | $ 15,130.00 |
Total expense | $ 155,300.00 | $ 4,520.00 | U | $ 150,780.00 | $ 1,650.00 | U | $ 152,430.00 |