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	$16.50q
Indirect labor	$4,200 + $1.70q
Utilities	$5,300 + $0.60q
Supplies	$1,300 + $0.10q
Equipment depreciation	$18,200 + $2.40q
Factory rent	$8,300
Property taxes	$2,800
Factory administration	$13,200 + $0.80q

The Production Department planned to work 4,000 labor-hours in March; however, it actually worked 3,800 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	64,320
Indirect labor	$	10,180
Utilities	$	8,090
Supplies	$	1,910
Equipment depreciation	$	27,320
Factory rent	$	8,700
Property taxes	$	2,800
Factory administration	$	15,630

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