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	$4,000 + $1.40q
Utilities	$5,000 + $0.60q
Supplies	$1,200 + $0.30q
Equipment depreciation	$18,100 + $2.90q
Factory rent	$8,600
Property taxes	$2,800
Factory administration	$13,100 + $0.70q

The Production Department planned to work 4,100 labor-hours in March; however, it actually worked 3,900 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	65,970
Indirect labor	$	8,920
Utilities	$	7,850
Supplies	$	2,640
Equipment depreciation	$	29,410
Factory rent	$	9,000
Property taxes	$	2,800
Factory administration	$	15,200

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

Packaging Solutions Corp Planning Budget For the Year Ended Formula Budgeted Hours Expenese Direct Labor Indirect Labor 4100 16.50 67650 4100 4000 9740 4100 1.40 Utilities 5000 7460 4100 0.60 Supplies Equipment Depreciation Factory rent Property Taxes Factory Administration Total Expenses 2430 4100 0.30 1200 29990 2.90 4100 18100 8600 8600 2800 2800 15970 0.70+ 4100 13100 144640

Packaging Solutions Corp Fexible Budget For the Year Ended Formula Actula Hours Expenese Direct Labor Indirect Labor 3900 64350 3900 16.50 0 9460 3900 1.40 4000 Utilities 0.60 7340 3900 5000 Supplies Equipment Depreciation Factory rent Property Taxes Factory Administration Total Expenses 3900 2370 0.30 1200 29410 18100 3900 2.90 8600 8600 2800 2800 3900 13100 15830 0.70 140160

Packaging Solutions Corp Spending Variance For the Year Ended Actual Flexible Spending Varaince Results Budget Actula Hours 3900 3900 Expenese Direct Labor Indirect Labor Utilities Supplies Equipment Depreciation Factory rent Property Taxes Factory Administration Total Expenses 65970 64350 1620 U 540 8920 9460 7850 510 7340 U 270 2640 U 2370 29410 0 None 29410 9000 400 U 8600 2800 0 None 2800 15200 630 15830 141790 1630 U 140160