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	$16.60q
Indirect labor	$4,400 + $1.50q
Utilities	$5,700 + $0.70q
Supplies	$1,400 + $0.40q
Equipment depreciation	$18,700 + $2.40q
Factory rent	$8,100
Property taxes	$2,600
Factory administration	$13,700 + $0.60q

The Production Department planned to work 4,300 labor-hours in March; however, it actually worked 4,100 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	69,700
Indirect labor	$	10,030
Utilities	$	9,100
Supplies	$	3,330
Equipment depreciation	$	28,540
Factory rent	$	8,500
Property taxes	$	2,600
Factory administration	$	15,510

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

1
Planning Budget
Budgeted labor hours	4300
Direct labor	71380	=4300*16.6
Indirect labor	10850	=4400+(4300*1.5)
Utilities	8710	=5700+(4300*0.7)
Supplies	3120	=1400+(4300*0.4)
Equipment Depreciation	29020	=18700+(4300*2.4)
Factory rent	8100
Property taxes	2600
Factory administration	16280	=13700+(4300*0.6)
Total expenses	150060
2
Flexible Budget
Actual labor hours	4100
Direct labor	68060	=4100*16.6
Indirect labor	10550	=4400+(4100*1.5)
Utilities	8570	=5700+(4100*0.7)
Supplies	3040	=1400+(4100*0.4)
Equipment Depreciation	28540	=18700+(4100*2.4)
Factory rent	8100
Property taxes	2600
Factory administration	16160	=13700+(4100*0.6)
Total expenses	145620
3
	Actual	Spending variance		Flexible budget	Activity variance		Planning budget
Labor hours	4100			4100			4300
Direct labor	69700	1640	U	68060	3320	F	71380
Indirect labor	10030	520	F	10550	300	F	10850
Utilities	9100	530	U	8570	140	F	8710
Supplies	3330	290	U	3040	80	F	3120
Equipment Depreciation	28540	0	None	28540	480	F	29020
Factory rent	8500	400	U	8100	0	None	8100
Property taxes	2600	0	None	2600	0	None	2600
Factory administration	15510	650	F	16160	120	F	16280
Total expenses	147310	1690	U	145620	4440	F	150060