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	$4,200 + $1.50q
Utilities	$5,100 + $0.60q
Supplies	$1,200 + $0.10q
Equipment depreciation	$18,600 + $2.50q
Factory rent	$8,400
Property taxes	$2,600
Factory administration	$13,300 + $0.70q

The Production Department planned to work 4,500 labor-hours in March; however, it actually worked 4,300 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	71,670
Indirect labor	$	10,130
Utilities	$	8,190
Supplies	$	1,860
Equipment depreciation	$	29,350
Factory rent	$	8,800
Property taxes	$	2,600
Factory administration	$	15,680

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.

Answer 1

​​​​​​