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	$16.20q
Indirect labor	$4,400 + $1.40q
Utilities	$5,000 + $0.50q
Supplies	$1,600 + $0.30q
Equipment depreciation	$18,700 + $2.80q
Factory rent	$8,300
Property taxes	$2,700
Factory administration	$13,000 + $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	$	71,220
Indirect labor	$	9,880
Utilities	$	7,640
Supplies	$	3,160
Equipment depreciation	$	30,740
Factory rent	$	8,700
Property taxes	$	2,700
Factory administration	$	15,380

Required:

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

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

3. Prepare the Production Department’s flexible budget performance report for March, including both the spending and activity variances.
Required 1 Required 2 Required 3 Prepare the Production Department's planning budget for the month Packaging Solutions Corporation Production Department Planning Budget For the Month Ended March 31 Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Total expense

Answer 1

Answers

• [1]

		WORKING COLUMNS					Planning Static Budget
Labor hours							4,500
Expenses:
Direct Labor	(	$                      -	)	$    16.20	x 4500		$          72,900.00
Indirect Labor	(	$         4,400.00	)	$      1.40	x 4500	)	$          10,700.00
Utilities	(	$         5,000.00	+	$      0.50	x 4500	)	$             7,250.00
Supplies	(	$         1,600.00	+	$      0.30	x 4500	)	$             2,950.00
Equipment Depreciation	(	$      18,700.00	+	$      2.80	x 4500		$          31,300.00
Factory Rent	(	$         8,300.00	)	$           -	x 4500		$             8,300.00
Property Taxes	(	$         2,700.00	)	$           -	x 4500		$             2,700.00
Factory Administration	(	$      13,000.00	)	$      0.70	x 4500		$          16,150.00
Total Expenses		$      53,700.00		$    21.90			$        152,250.00

• [2]

		WORKING COLUMNS					Flexible Budget
Labor hours							4,300
Expenses:
Direct Labor	(	$                      -	)	$    16.20	x 4300		$             69,660.00
Indirect Labor	(	$         4,400.00	)	$      1.40	x 4300	)	$             10,420.00
Utilities	(	$         5,000.00	+	$      0.50	x 4300	)	$               7,150.00
Supplies	(	$         1,600.00	+	$      0.30	x 4300	)	$               2,890.00
Equipment Depreciation	(	$      18,700.00	+	$      2.80	x 4300		$             30,740.00
Factory Rent	(	$         8,300.00	)	$           -	x 4300		$               8,300.00
Property Taxes	(	$         2,700.00	)	$           -	x 4300		$               2,700.00
Factory Administration	(	$      13,000.00	)	$      0.70	x 4300		$             16,010.00
Total Expenses		$      53,700.00		$    21.90			$           147,870.00

• [3]

	Actual Result	Revenue & Spending Variance		Flexible Budget	Activity variance		Planning Static Budget
Labor hours	4,300			4,300			4,500
Expenses:
Direct Labor	$               71,220.00	$         1,560.00	U	$             69,660.00	$            3,240.00	F	$          72,900.00
Indirect Labor	$                 9,880.00	$             540.00	F	$             10,420.00	$                280.00	F	$          10,700.00
Utilities	$                 7,640.00	$             490.00	U	$               7,150.00	$                100.00	F	$             7,250.00
Supplies	$                 3,160.00	$             270.00	U	$               2,890.00	$                  60.00	F	$             2,950.00
Equipment Depreciation	$               30,740.00	$                      -	N	$             30,740.00	$                560.00	F	$          31,300.00
Factory Rent	$                 8,700.00	$             400.00	U	$               8,300.00	$                         -	None	$             8,300.00
Property Taxes	$                 2,700.00	$                      -	N	$               2,700.00	$                         -	None	$             2,700.00
Factory Administration	$               15,380.00	$             630.00	F	$             16,010.00	$                140.00	F	$          16,150.00
Total Expenses	$            149,420.00	$         1,550.00	U	$           147,870.00	$            4,380.00	F	$        152,250.00