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 is the number of labor-hours worked in a month: Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Cost Formulas $16.509 $4,700 + $1.909 $5,000 + $0.500 $1,300 + $0.400 $18,000 + $2.709 $8,300 $2,500 $13,200 + $0.709 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: Direct labor Actual Cost Incurred in March $ 65,970 Indirect labor $ 11,670 Utilities $ 7,440 Supplies $ 3,150 Equipment depreciation $ 28,530 Factory rent $ 8,700 Property taxes $ 2,500 Factory administration $ 15,300 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

Planning Budget
Budgeted Labour hours		4100
Direct labour			67650	(16.50*4100)
Indirect Labour			12490	(4700+1.90*4100)
Utilities expense			7050	(5000+0.50*4100)
Supplies expense			2940	(1300+0.40*4100)
Equipment depreciation		29070	(18000+2.70*4100)
Factory rent			8300
Property taxes			2500
Factory administration		16070	(13200+0.70*4100)
Total expense			1,46,070
Flexible Budget
Actual Labour hours			3900
Direct labour			64350	(16.50*3900)
Indirect Labour			12110	(4700+1.90*3900)
Utilities expense			6950	(5000+0.50*3900)
Supplies expense			2860	(1300+0.40*3900)
Equipment depreciation		28530	(18000+2.70*3900)
Factory rent			8300
Property taxes			2500
Factory administration		15930	(13200+0.70*3900)
Total expense			1,41,530
Spending variance
				Actual	Spending variance	Flexible
Actual Labour hours			3900			3900
Direct labour			65,970	1,620	U	64350
Indirect Labour			11,670	440	F	12110
Utilities expense			7,440	490	U	6950
Supplies expense			3,150	290	U	2860
Equipment depreciation		28,530	0		28530
Factory rent			8,700	400	U	8300
Property taxes			2,500	0		2500
Factory administration		15,300	630	F	15930
Total expense			1,43,260	1,730	U	1,41,530