Question

In: Accounting

Packaging Solutions Corporation manufactures and sells a wide variety of packaging products. Performance reports are prepared...

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 $16.40q
Indirect labor $4,200 + $1.80q
Utilities $5,400 + $0.30q
Supplies $1,700 + $0.30q
Equipment depreciation $18,400 + $2.70q
Factory rent $8,400
Property taxes $2,900
Factory administration $13,500 + $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 $ 70,480
Indirect labor $ 11,300
Utilities $ 7,110
Supplies $ 3,230
Equipment depreciation $ 29,740
Factory rent $ 8,800
Property taxes $ 2,900
Factory administration $ 15,370

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.

Solutions

Expert Solution

Answer-1)-

PACKAGING SOLUTIONS CORPORATION
Planning Budget
For the month ended March
Particulars Amount
$
Direct labor 4400 labor hours*$16.40 per hour 72160
Indirect labor (4400 labor hours*$1.80 per hour)+$4200 12120
Utilities (4400 labor hours*$0.30 per hour)+$5400 6720
Supplies (4400 labor hours*$0.30 per hour)+$1700 3020
Equipment Depreciation (4400 labor hours*$2.70 per hour)+$18400 30280
Factory Rent 8400
Property taxes 2900
Factory administration (4400 labor hours*$0.60 per hour)+$13500 16140
Total costs 151740

2)-

PACKAGING SOLUTIONS CORPORATION
Flexible Budget
For the month ended March
Particulars Amount
$
Direct labor 4200 labor hours*$16.40 per hour 68880
Indirect labor (4200 labor hours*$1.80 per hour)+$4200 11760
Utilities (4200 labor hours*$0.30 per hour)+$5400 6660
Supplies (4200 labor hours*$0.30 per hour)+$1700 2960
Equipment Depreciation (4200 labor hours*$2.70 per hour)+$18400 29740
Factory Rent 8400
Property taxes 2900
Factory administration (4200 labor hours*$0.60 per hour)+$13500 16020
Total costs 147320

3)-

PACKAGING SOLUTIONS CORPORTAION
Production Department Flexible Budget Performance Report
For the month ended March 31
Particulars Actual Results Variance Remark Flexible Budget Variance Remark Planning Budget
$ $ $ $ $
Labor hours 4200 4200 4400
Direct labor 70480 -1600 Unfavorable 68880 3280 Favorable 72160
Indirect labor 11300 460 Favorable 11760 360 Favorable 12120
Utilities 7110 -450 Unfavorable 6660 60 Favorable 6720
Supplies 3230 -270 Unfavorable 2960 60 Favorable 3020
Equipment Depreciation 29740 0 None 29740 540 Favorable 30280
Factory Rent 8800 -400 Unfavorable 8400 0 None 8400
Property taxes 2900 0 None 2900 0 None 2900
Factory administration 15370 650 Favorable 16020 120 Favorable 16140
Total Expenses 148930 -1610 Unfavorable 147320 4420 Favorable 151740

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