In: Accounting
Acompany manufactures and sells a wide variety of 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 | $4,200 + $1.80q |
Utilities | $5,500 + $0.70q |
Supplies | $1,600 + $0.20q |
Equipment depreciation | $18,700 + $2.70q |
Factory rent | $8,300 |
Property taxes | $2,700 |
Factory administration | $13,200 + $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 | $ | 68,410 | |
Indirect labor | $ | 11,120 | |
Utilities | $ | 8,900 | |
Supplies | $ | 2,670 | |
Equipment depreciation | $ | 29,770 | |
Factory rent | $ | 8,700 | |
Property taxes | $ | 2,700 | |
Factory administration | $ | 15,870 | |
Required:
Prepare the Production Department’s flexible budget performance report for March, including both the spending and activity variances.
Solution:
Flexible Budget Performance Report | |||||||
For the month ended March 31 | |||||||
Particulars | Actual Results | Revenue and spending variances | Flexible Budget | Activity Variances | Planning Budget | ||
Labor Hours | 4100 | 4100 | 4300 | ||||
Direct labor | $68,410.00 | $1,580.00 | U | $66,830.00 | $3,260.00 | F | $70,090.00 |
Indirect labor | $11,120.00 | $460.00 | F | $11,580.00 | $360.00 | F | $11,940.00 |
Utilities | $8,900.00 | $530.00 | U | $8,370.00 | $140.00 | F | $8,510.00 |
Supplies | $2,670.00 | $250.00 | U | $2,420.00 | $40.00 | F | $2,460.00 |
Equipment Depreciation | $29,770.00 | $0.00 | None | $29,770.00 | $540.00 | F | $30,310.00 |
Factory Rent | $8,700.00 | $400.00 | U | $8,300.00 | $0.00 | None | $8,300.00 |
Property tax | $2,700.00 | $0.00 | None | $2,700.00 | $0.00 | None | $2,700.00 |
Factory Administration | $15,870.00 | $610.00 | F | $16,480.00 | $160.00 | F | $16,640.00 |
Total expense | $1,48,140.00 | $1,690.00 | U | $1,46,450.00 | $4,500.00 | F | $1,50,950.00 |