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 | $16.40q |
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.
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 |