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	$16.30q
Indirect labor	$4,600 + $1.50q
Utilities	$5,500 + $0.80q
Supplies	$1,300 + $0.10q
Equipment depreciation	$18,300 + $2.80q
Factory rent	$8,200
Property taxes	$2,700
Factory administration	$13,300 + $0.90q

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	$	65,150
Indirect labor	$	9,930
Utilities	$	9,170
Supplies	$	1,920
Equipment depreciation	$	29,220
Factory rent	$	8,600
Property taxes	$	2,700
Factory administration	$	16,220

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.

Answer 1

		Cost Formulas	Cost For q=4100	Cost for q=3900
	Direct labor	$16.30q	$66,830	$63,570
	Indirect labor	$4,600 + $1.50q	$10,750	$10,450
	Utilities	$5,500 + $0.80q	$8,780	$8,620
	Supplies	$1,300 + $0.10q	$1,710	$1,690
	Equipment depreciation	$18,300 + $2.80q	$29,780	$29,220
	Factory rent	$8,200	$8,200	$8,200
	Property taxes	$2,700	$2,700	$2,700
	Factory administration	$13,300 + $0.90q	$16,990	$16,810
1	PLANNING BUDGET
		Budgeted Cost
	Direct labor	$66,830
	Indirect labor	$10,750
	Utilities	$8,780
	Supplies	$1,710
	Equipment depreciation	$29,780
	Factory rent	$8,200
	Property taxes	$2,700
	Factory administration	$16,990
	Total	$145,740
2	FLEXIBLE BUDGET
		Budgeted Cost
	Direct labor	$63,570
	Indirect labor	$10,450
	Utilities	$8,620
	Supplies	$1,690
	Equipment depreciation	$29,220
	Factory rent	$8,200
	Property taxes	$2,700
	Factory administration	$16,810
	Total	$141,260
	FLEXIBLE BUDGET PERFORMANCE REPORT
3
		A	B	C	D=B-C	E=A-B
		Panning Budget	Flexible Budget	Actual Cost	Spending Variance	Activity Variance
	Direct labor	$66,830	$63,570	$65,150	-$1,580	$3,260
	Indirect labor	$10,750	$10,450	$9,930	$520	$300
	Utilities	$8,780	$8,620	$9,170	-$550	$160
	Supplies	$1,710	$1,690	$1,920	-$230	$20
	Equipment depreciation	$29,780	$29,220	$29,220	$0	$560
	Factory rent	$8,200	$8,200	$8,600	-$400	$0
	Property taxes	$2,700	$2,700	$2,700	$0	$0
	Factory administration	$16,990	$16,810	$16,220	$590	$180
	Total	$145,740	$141,260	$142,910	-$1,650	$4,480