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	$4,100 + $1.70q
Utilities	$5,200 + $0.90q
Supplies	$1,600 + $0.30q
Equipment depreciation	$18,300 + $2.90q
Factory rent	$8,300
Property taxes	$2,500
Factory administration	$13,600 + $0.60q

The Production Department planned to work 4,100 labor-hours in March; however, it actually worked 3,900 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	65,560
Indirect labor	$	10,250
Utilities	$	9,280
Supplies	$	3,040
Equipment depreciation	$	29,610
Factory rent	$	8,700
Property taxes	$	2,500
Factory administration	$	15,290

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

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

	4100 Hours
Direct labor	67240
Indirect labour	11070
Utilities	8890
Supplies	2830
Equipment depreciation	30190
Factory rent	8300
Property tax	2500
Factory administration	16060
Total	147080

2. Prepare the Production Department’s Flexible budget for the month.

	3900 Hours
Direct labor	63960
Indirect labour	10730
Utilities	8710
Supplies	2770
Equipment depreciation	29610
Factory rent	8300
Property tax	2500
Factory administration	15940
Total	142520

3. Prepare the Production Department’s flexible budget performance report for March, including both the spending and activity variances

	Actual	Spending variance	Flexible budget	Activity variance	Planning budget
Direct labour	65560	1600 U	63960	3280 F	67240
Indirect labour	10250	480 F	10730	340 F	11070
Utilities	9280	570 U	8710	180 F	8890
Supplies	3040	270 U	2770	60 F	2830
Equipment depreciation	29610	0 None	29610	580 F	30190
Factory rent	8700	400 U	8300	0 None	8300
Property tax	2500	0 None	2500	0 None	2500
Factory administration	15290	650 F	15940	120 F	16060
Total	144230	1710 U	142520	4560 F	147080