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	$4,800 + $2.00q
Utilities	$5,600 + $0.60q
Supplies	$1,300 + $0.20q
Equipment depreciation	$18,500 + $2.60q
Factory rent	$8,200
Property taxes	$2,600
Factory administration	$13,100 + $0.80q

The Production Department planned to work 4,300 labor-hours in March; however, it actually worked 4,100 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	69,270
Indirect labor	$	12,580
Utilities	$	8,570
Supplies	$	2,370
Equipment depreciation	$	29,160
Factory rent	$	8,600
Property taxes	$	2,600
Factory administration	$	15,770

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

Formula Packaging Solutions Corp Planning Budget For the Year Ended Budgeted Hours 4300 Expenese Direct Labor 70950 Indirect Labor 13400 Utilities 8180 Supplies 2160 Equipment Depreciation 29680 Factory rent 8200 Property Taxes 2600 Factory Administration 16540 Total Expenses 151710 4300 * 4300 * 4300 * 4300 * 4300 * 16.50 2.00 + 4800 0.60 + 5600 0.20 + 1300 2.60 + 18500 8200 2600 0.80 + 13100 4300 *

Formula Packaging Solutions Corp Fexible Budget For the Year Ended Actula Hours 4100 Expenese Direct Labor 67650 Indirect Labor 13000 Utilities 8060 Supplies 2120 Equipment Depreciation 29160 Factory rent 8200 Property Taxes 2600 Factory Administration 16380 Total Expenses 147170 4100 * 4100 * 4100 * 4100 * 4100 * 16.50 2.00 + 4800 0.60 + 5600 0.20 + 1300 2.60 + 18500 8200 2600 0.80 + 13100 4100 *

Flexible Budget 4100 Packaging Solutions Corp Spending Variance For the Year Ended Actual Results Spending Varaince Actula Hours 4100 Expenese Direct Labor 69270 1620 U Indirect Labor 152801 2280 U Utilities 8570 5101 U Supplies 2370 250 U Equipment Depreciation 29160 0 None Factory rent 8600 400 U Property Taxes 2600 0 None Factory Administration 15770 610 F Total Expenses 151620 4450 67650 13000 8060 2120 29160 8200 2600 16380 147170