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	$16.60q
Indirect labor	$4,800 + $1.30q
Utilities	$5,700 + $0.70q
Supplies	$1,600 + $0.20q
Equipment depreciation	$18,800 + $2.50q
Factory rent	$8,600
Property taxes	$2,600
Factory administration	$13,600 + $0.80q

The Production Department planned to work 4,300 labor-hours in March; however, it actually worked 4,100 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	69,700
Indirect labor	$	9,570
Utilities	$	9,100
Supplies	$	2,670
Equipment depreciation	$	29,050
Factory rent	$	9,000
Property taxes	$	2,600
Factory administration	$	16,270

Required:

1. Prepare 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

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

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 Spending Variances For the Month Ended March 31 Actual Results Spending Variances Flexible Budget Labor-hours 4,100 Direct labor $69,700 Indirect labor 9,570 Utilities 9,100 Supplies 2,670 Equipment depreciation 29,050 Factory rent 9,000 Property taxes 2,600 Factory administration 16,270 Total expense $147,960

Answer 1

1	Packaging Solutions Corporation
	Production Department Planning Budget
	For the Month Ended March 31
	Labor-hours	4,300
	Direct labor	71,380
	Indirect labor	10,390
	Utilities	8,710
	Supplies	2,460
	Equipment depreciation	29,550
	Factory rent	8,600
	Property taxes	2,600
	Factory administration	17,040
	Total expense	150,730
2	Packaging Solutions Corporation
	Production Department Flexible Budget
	For the Month Ended March 31
	Labor-hours	4,100
	Direct labor	68,060
	Indirect labor	10,130
	Utilities	8,570
	Supplies	2,420
	Equipment depreciation	29,050
	Factory rent	8,600
	Property taxes	2,600
	Factory administration	16,880
	Total expense	146,310
3	Packaging Solutions Corporation
	Spending Variances
	For the Month Ended March 31
		Actual Result	Spending Variances		Flexible Budget
	Labor-hours	4,100			4,100
	Direct labor	69,700	1,640	U	68,060
	Indirect labor	9,570	560	F	10,130
	Utilities	9,100	530	U	8,570
	Supplies	2,670	250	U	2,420
	Equipment depreciation	29,050	-		29,050
	Factory rent	9,000	400	U	8,600
	Property taxes	2,600	-		2,600
	Factory administration	16,270	610	F	16,880
	Total expense	147,960	1,650	U	146,310