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: Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Cost Formulas $16.609 $4,400 + $ 2.000 $5,800 + $0.400 $1,300 + $0.40q $18,300 + $3.000 $ 8,100 $2,500 $13,500 + $0.809 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: Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Actual Cost Incurred in March $ 71,360 $ 12,380 $ 7,950 $ 3,270 $ 30,900 $ 8,500 $ 2,500 $ 16,250 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

1
Planning Budget
Budgeted labor hours	4400
Direct labor	73040	=4400*16.6
Indirect labor	13200	=4400+(4400*2)
Utilities	7560	=5800+(4400*0.4)
Supplies	3060	=1300+(4400*0.4)
Equipment Depreciation	31500	=18300+(4400*3)
Factory rent	8100
Property taxes	2500
Factory administration	17020	=13500+(4400*0.8)
Total expenses	155980
2
Flexible Budget
Actual labor hours	4200
Direct labor	69720	=4200*16.6
Indirect labor	12800	=4400+(4200*2)
Utilities	7480	=5800+(4200*0.4)
Supplies	2980	=1300+(4200*0.4)
Equipment Depreciation	30900	=18300+(4200*3)
Factory rent	8100
Property taxes	2500
Factory administration	16860	=13500+(4200*0.8)
Total expenses	151340
3
	Actual	Spending variance		Flexible budget
Labor hours	4200			4200
Direct labor	71360	1640	U	69720
Indirect labor	12380	420	F	12800
Utilities	7950	470	U	7480
Supplies	3270	290	U	2980
Equipment Depreciation	30900	0	None	30900
Factory rent	8500	400	U	8100
Property taxes	2500	0	None	2500
Factory administration	16250	610	F	16860
Total expenses	153110	1770	U	151340