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chapter 9 h 2 Exercise 9-16 Flexible Budgets in a Cost Center [LO9-1, LO9-2] Packaging Solutions...

chapter 9 h 2

Exercise 9-16 Flexible Budgets in a Cost Center [LO9-1, LO9-2]

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 $16.40q
Indirect labor $4,500 + $1.50q
Utilities $5,700 + $0.60q
Supplies $1,200 + $0.40q
Equipment depreciation $18,400 + $2.80q
Factory rent $8,500
Property taxes $3,000
Factory administration $13,100 + $0.60q

The Production Department planned to work 4,400 labor-hours in March; however, it actually worked 4,200 labor-hours during the month. Its actual costs incurred in March are listed below:

Actual Cost Incurred in March
Direct labor $ 70,480
Indirect labor $ 10,280
Utilities $ 8,730
Supplies $ 3,170
Equipment depreciation $ 30,160
Factory rent $ 8,900
Property taxes $ 3,000
Factory administration $ 14,970

Required:

1. Prepare the Production Department’s planning budget for the month.

2. Prepare the Production Department’s flexible budget for the month.

3. Calculate the spending variances for all expense items.

Solutions

Expert Solution

1
Planning Budget
Budgeted labor hours 4400
Direct labor 72160 =4400*16.4
Indirect labor 11100 =4500+(4400*1.5)
Utilities 8340 =5700+(4400*0.6)
Supplies 2960 =1200+(4400*0.4)
Equipment Depreciation 30720 =18400+(4400*2.8)
Factory rent 8500
Property taxes 3000
Factory administration 15740 =13100+(4400*0.6)
Total expenses 152520
2
Flexible Budget
Actual labor hours 4200
Direct labor 68880 =4200*16.4
Indirect labor 10800 =4500+(4200*1.5)
Utilities 8220 =5700+(4200*0.6)
Supplies 2880 =1200+(4200*0.4)
Equipment Depreciation 30160 =18400+(4200*2.8)
Factory rent 8500
Property taxes 3000
Factory administration 15620 =13100+(4200*0.6)
Total expenses 148060
3
Actual Spending variance Flexible budget
Labor hours 4200 4200
Direct labor 70480 1600 U 68880
Indirect labor 10280 520 F 10800
Utilities 8730 510 U 8220
Supplies 3170 290 U 2880
Equipment Depreciation 30160 0 None 30160
Factory rent 8900 400 U 8500
Property taxes 3000 0 None 3000
Factory administration 14970 650 F 15620
Total expenses 149690 1630 U 148060

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