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	$16.30q
Indirect labor	$4,000 + $2.10q
Utilities	$5,100 + $0.60q
Supplies	$1,300 + $0.30q
Equipment depreciation	$18,700 + $2.80q
Factory rent	$8,200
Property taxes	$2,400
Factory administration	$13,700 + $0.70q

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	$	70,040
Indirect labor	$	12,420
Utilities	$	8,130
Supplies	$	2,830
Equipment depreciation	$	30,460
Factory rent	$	8,600
Property taxes	$	2,400
Factory administration	$	16,010

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.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Prepare the Production Department’s planning budget for the month.

1)

	Packaging Solutions Corporation Production Department Planning Budget For the Month Ended March 31 Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Total expense $0

2)

Prepare the Production Department’s flexible budget for the month.

	Packaging Solutions Corporation Production Department Flexible Budget For the Month Ended March 31 Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Total expense $0

Prepare the Production Department’s flexible budget performance report for March, including both the spending and activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

3)

Prepare the Production Department’s flexible budget performance report for March, including both the spending and activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

	Packaging Solutions Corporation Production Department Flexible Budget Performance Report For the Month Ended March 31 Actual Results Flexible Budget Planning Budget Labor-hours 4,200 Direct labor $70,040 Indirect labor 12,420 Utilities 8,130 Supplies 2,830 Equipment depreciation 30,460 Factory rent 8,600 Property taxes 2,400 Factory administration 16,010 Total expense $150,890

Answer 1

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Packaging Solutions Corporation
Workings for Answer 1
Calculation for Planning budget:	A	B= 4,400* A	C	D=B+C
Items	Variable Cost Per labor hour	Variable Cost	Fixed Cost	Total Amount $
Labor Hours				4,400.00
Direct labor	16.30	71,720.00		71,720.00
Indirect labor	2.10	9,240.00	4,000.00	13,240.00
Utilities	0.60	2,640.00	5,100.00	7,740.00
Supplies	0.30	1,320.00	1,300.00	2,620.00
Equipment depreciation	2.80	12,320.00	18,700.00	31,020.00
Factory rent			8,200.00	8,200.00
Property taxes			2,400.00	2,400.00
Factory administration	0.70	3,080.00	13,700.00	16,780.00

Answer 1
Planning budget:
Items	Amount $
Direct labor	71,720.00
Indirect labor	13,240.00
Utilities	7,740.00
Supplies	2,620.00
Equipment depreciation	31,020.00
Factory rent	8,200.00
Property taxes	2,400.00
Factory administration	16,780.00
Total Expense	153,720.00

Workings for Answer 2
Calculation for flexible budget:	A	B= 4,200* A	C	D=B+C
Items	Variable Cost Per patient visit	Variable Cost	Fixed Cost	Total Amount $
Labor Hours				4,200.00
Direct labor	16.30	68,460.00		68,460.00
Indirect labor	2.10	8,820.00	4,000.00	12,820.00
Utilities	0.60	2,520.00	5,100.00	7,620.00
Supplies	0.30	1,260.00	1,300.00	2,560.00
Equipment depreciation	2.80	11,760.00	18,700.00	30,460.00
Factory rent			8,200.00	8,200.00
Property taxes			2,400.00	2,400.00
Factory administration	0.70	2,940.00	13,700.00	16,640.00

Answer 2
Flexible budget:
Items	Amount $
Direct labor	68,460.00
Indirect labor	12,820.00
Utilities	7,620.00
Supplies	2,560.00
Equipment depreciation	30,460.00
Factory rent	8,200.00
Property taxes	2,400.00
Factory administration	16,640.00
Total Expense	149,160.00

Answer 3
Flexible budget variance report:		Flexible budget Variance			Planning budget
Particulars	Actual Results	Flexible budget	Amount	Remarks
Labor Hours	4,200.00	4,200.00			4,400.00
Expenses:
Direct labor	70,040.00	68,460.00	1,580.00	Unfavorable	71,720.00
Indirect labor	12,420.00	12,820.00	(400.00)	Favorable	13,240.00
Utilities	8,130.00	7,620.00	510.00	Unfavorable	7,740.00
Supplies	2,830.00	2,560.00	270.00	Unfavorable	2,620.00
Equipment depreciation	30,460.00	30,460.00	-	NA	31,020.00
Factory rent	8,600.00	8,200.00	400.00	Unfavorable	8,200.00
Property taxes	2,400.00	2,400.00	-	NA	2,400.00
Factory administration	16,010.00	16,640.00	(630.00)	Favorable	16,780.00
Total Expense	150,890.00	149,160.00	1,730.00	Unfavorable	153,720.00