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	$16.30q
Indirect labor	$4,600 + $1.90q
Utilities	$5,400 + $0.50q
Supplies	$1,400 + $0.30q
Equipment depreciation	$18,300 + $2.70q
Factory rent	$8,400
Property taxes	$3,000
Factory administration	$13,700 + $0.70q

The Production Department planned to work 4,200 labor-hours in March; however, it actually worked 4,000 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	66,780
Indirect labor	$	11,760
Utilities	$	7,890
Supplies	$	2,870
Equipment depreciation	$	29,100
Factory rent	$	8,800
Property taxes	$	3,000
Factory administration	$	15,870

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.

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

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

Prepare the Production Department’s flexible budget performance report for March, including both the spending and activity variances. (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 Actual Results Flexible Budget Planning Budget Labor-hours 4,000 Direct labor $66,780 Indirect labor 11,760 Utilities 7,890 Supplies 2,870 Equipment depreciation 29,100 Factory rent 8,800 Property taxes 3,000 Factory administration 15,870 Total expense $146,070

Answer 1

Answer 1.
Packaging Solutions Corporation
Production Department Planning Budget
For the Month Ended Mar 31
Direct Labor Hours (q)		4,200
Direct Labor	$16.30q	68,460.00
Indirect Labor	$4,600 + $1.90q	12,580.00
Utilities	$5,400 + $0.50q	7,500.00
Supplies	$1,400 + $0.30q	2,660.00
Equipment Depreciation	$18,300 + $2.70q	29,640.00
Factory Rent	$8,400	8,400.00
Property Taxes	$3,000	3,000.00
Factory Administration	$13,700 + $0.70q	16,640.00
Total Expenses		148,880.00
Answer 2.
Packaging Solutions Corporation
Production Department Flexible Budget
For the Month Ended Mar 31
Direct Labor Hours (q)		4,000
Direct Labor	$16.30q	65,200.00
Indirect Labor	$4,600 + $1.90q	12,200.00
Utilities	$5,400 + $0.50q	7,400.00
Supplies	$1,400 + $0.30q	2,600.00
Equipment Depreciation	$18,300 + $2.70q	29,100.00
Factory Rent	$8,400	8,400.00
Property Taxes	$3,000	3,000.00
Factory Administration	$13,700 + $0.70q	16,500.00
Total Expenses		144,400.00
Answer 3.
Packaging Solutions Corporation
Flexible Budget Performance Report
For the Month Ended Mar 31
	Actual Results	Spending Variance		Flexible Budget	Actual Variance		Planning Budget
Direct Labor Hours	4,000.00			4,000			4,200
Expenses
Direct Labor	66,780.00	1,580.00	U	65,200	3,260	F	68,460
Indirect Labor	11,760.00	440.00	F	12,200	380	F	12,580
Utilities	7,890.00	490.00	U	7,400	100	F	7,500
Supplies	2,870.00	270.00	U	2,600	60	F	2,660
Equipment Depreciation	29,100.00	-	U	29,100	540	F	29,640
Factory Rent	8,800.00	400.00	U	8,400	-		8,400
Property Taxes	3,000.00	-		3,000	-		3,000
Factory Administration	15,870.00	630.00	F	16,500	140	F	16,640
Total Expenses	146,070.00	21,170.00	U	124,900	4,340	F	129,240