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: Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Cost Formulas $16.409 $4,700 + $2.009 $5,600 + $0.609 $1,600 + $0.309 $18, 100 + $ 2.809 $8,200 $2,600 $13,700 + $0.709 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: Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Actual Cost Incurred in March $ 68,840 $ 12,480 $ 8,570 $ 3,100 $ 29,580 $ 8,600 $ 2,600 $ 15,940 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	70520	=4300*16.4
Indirect labor	13300	=4700+(4300*2)
Utilities	8180	=5600+(4300*0.6)
Supplies	2890	=1600+(4300*0.3)
Equipment Depreciation	30140	=18100+(4300*2.8)
Factory rent	8200
Property taxes	2600
Factory administration	16710	=13700+(4300*0.7)
Total expenses	152540
2
Flexible Budget
Actual labor hours	4100
Direct labor	67240	=4100*16.4
Indirect labor	12900	=4700+(4100*2)
Utilities	8060	=5600+(4100*0.6)
Supplies	2830	=1600+(4100*0.3)
Equipment Depreciation	29580	=18100+(4100*2.8)
Factory rent	8200
Property taxes	2600
Factory administration	16570	=13700+(4100*0.7)
Total expenses	147980
3
	Actual	Spending variance		Flexible budget	Activity variance		Planning budget
Labor hours	4100			4100			4300
Direct labor	68840	1600	U	67240	3280	F	70520
Indirect labor	12480	420	F	12900	400	F	13300
Utilities	8570	510	U	8060	120	F	8180
Supplies	3100	270	U	2830	60	F	2890
Equipment Depreciation	29580	0	None	29580	560	F	30140
Factory rent	8600	400	U	8200	0	None	8200
Property taxes	2600	0	None	2600	0	None	2600
Factory administration	15940	630	F	16570	140	F	16710
Total expenses	149710	1730	U	147980	4560	F	152540