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 $16.20g $4,000 $2.00g $5,200 $0.70g $1,300 $0.10g Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration $18,200 $2.60g $8,100 $2,600 $13,800 $0.80g 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 $69,600 $ 11,980 $ 8,670 $ 1,950 $29,120 $ 8,500 $ 2,600 Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration $16,550 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

Solution 1:

Packaging Solution Corporation
Production department planning budget
For the month ended March 31
Particulars	Amount
Labor Hours	4400
Direct labor (4400*$16.20)	$71,280.00
Indirect labor ($4000 + 4400*$2.00)	$12,800.00
Utilities ($5200 + 4400*$0.70)	$8,280.00
Supplies ($1300 + 4400*$0.10)	$1,740.00
Equipment Depreciation ($18200+4400*$2.60)	$29,640.00
Factory Rent	$8,100.00
Property tax	$2,600.00
Factory Administration ($13800 + 4400*$0.80)	$17,320.00
Total expense	$1,51,760.00

Solution 2:

Packaging Solution Corporation
Production department flexible budget
For the month ended March 31
Particulars	Amount
Labor Hours	4200
Direct labor (4200*$16.20)	$68,040.00
Indirect labor ($4000 + 4200*$2.00)	$12,400.00
Utilities ($5200 + 4200*$0.70)	$8,140.00
Supplies ($1300 + 4200*$0.10)	$1,720.00
Equipment Depreciation ($18200+4200*$2.60)	$29,120.00
Factory Rent	$8,100.00
Property tax	$2,600.00
Factory Administration ($13800 + 4200*$0.80)	$17,160.00
Total expense	$1,47,280.00

Solution 3:

Particulars	Actual Results	Revenue and spending variances		Flexible Budget
Labor Hours	4200			4200
Direct labor	$69,600.00	$1,560.00	U	$68,040.00
Indirect labor	$11,980.00	$420.00	F	$12,400.00
Utilities	$8,670.00	$530.00	U	$8,140.00
Supplies	$1,950.00	$230.00	U	$1,720.00
Equipment Depreciation	$29,120.00	$0.00	None	$29,120.00
Factory Rent	$8,500.00	$400.00	U	$8,100.00
Property tax	$2,600.00	$0.00	None	$2,600.00
Factory Administration	$16,550.00	$610.00	F	$17,160.00
Total expense	$1,48,970.00	$1,690.00	U	$1,47,280.00