Question

ch 8 exer #6

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:

Direct labor				$	16.30	q
Indirect labor	$	4,500	+	$	1.90	q
Utilities	$	5,100	+	$	0.60	q
Supplies	$	1,500	+	$	0.30	q
Equipment depreciation	$	18,200	+	$	2.80	q
Factory rent				$	8,100
Property taxes				$	2,600
Factory administration	$	13,600	+	$	0.60	q

  

The actual costs incurred in March in the Production Department are listed below:

  

	Actual Cost Incurred in March
Direct labor	$	70,040
Indirect labor	$	12,040
Utilities	$	8,130
Supplies	$	3,030
Equipment depreciation	$	29,960
Factory rent	$	8,500
Property taxes	$	2,600
Factory administration	$	15,470

Required:
a.	The company had budgeted for an activity level of 4,400 labor-hours in March. Complete the Production Department’s planning budget for the month.

	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

b.	The company actually worked 4,200 labor-hours in March. Complete 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

3. Calculate the spending variances for all expense items. (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 Spending Variances Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Total expense

Answer 1

Solution:

Part a --- Planning Budget

Budgeted activity level = 4,400 labor hours

Packaging Solutions Corporation
Production Department Planning Budget
For the Month Ended March 31
Direct labor (4400*16.30)	$71,720
Indirect labor (4400*1.90 + 4500)	$12,860
Utilities (4400*0.60 + 5100)	$7,740
Supplies (4400*0.30 + 1500)	$2,820
Equipment depreciation (4400*2.8 + 18200)	$30,520
Factory rent	$8,100
Property taxes	$2,600
Factory administration (4400*0.60 + 13600)	$16,240
Total expense	$152,600

Part b – Flexible Budget

Flexible Budget is the budget prepared at budgeted prices on the basis of actual activity level achieved. In this budget, we use actual activity level achieved by the company during the year and standard cost or revenue in order to analysis or compare the actual result and flexible budget.

Spending Variance is the different of actual result and flexible budget. It may be Favorable or Unfavorable or None.

Actually worked 4,200 labor-hours

Packaging Solutions Corporation
Production Department Flexible Budget
For the Month Ended March 31
Direct labor (4200*16.30)	$68,460
Indirect labor (4200*1.90 + 4500)	$8,480
Utilities (4200*0.60 + 5100)	$7,620
Supplies (4200*0.30 + 1500)	$2,760
Equipment depreciation (4200*2.8 + 18200)	$29,960
Factory rent	$8,100
Property taxes	$2,600
Factory administration (4200*0.60 + 13600)	$16,120
Total expense	$144,100

Part c –

Packaging Solutions Corporation
Production Department Flexible Budget Performance Report
For the Month Ended March 31			working
	Spending Variances (Different of Flexible and Actual Result)		Actual Result	Flexible Budget (Part b)
Direct labor	$1,580	U	$70,040	$68,460
Indirect labor	$3,560	U	$12,040	$8,480
Utilities	$510	U	$8,130	$7,620
Supplies	$270	U	$3,030	$2,760
Equipment depreciation	$0	None	$29,960	$29,960
Factory rent	$400	U	$8,500	$8,100
Property taxes	$0	None	$2,600	$2,600
Factory administration	$650	F	$15,470	$16,120
Total expense	$5,670	U	$149,770	$144,100

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