In: Accounting
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.
| 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 |