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	$16.40q
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

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