Question

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.

Answer 1

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