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	$4,300 + $2.00q
Utilities	$5,400 + $0.70q
Supplies	$1,400 + $0.20q
Equipment depreciation	$18,400 + $2.80q
Factory rent	$8,100
Property taxes	$2,600
Factory administration	$13,600 + $0.70q

The Production Department planned to work 4,500 labor-hours in March; however, it actually worked 4,300 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	72,570
Indirect labor	$	12,480
Utilities	$	8,940
Supplies	$	2,510
Equipment depreciation	$	30,440
Factory rent	$	8,500
Property taxes	$	2,600
Factory administration	$	15,980

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.

Packaging Solutions Corporation
Planning Budget
For the Month Ending March 31
Number of labor hours (q)	4500
Expenses
Direct labor	74250
Indirect labor	13300
Utilities	8550
Supplies	2300
Equipment depreciation	31000
Factory rent	8100
Property taxes	2600
Factory administration	16750
Total expense $	156850

2.

Packaging Solutions Corporation
Flexible Budget
For the Month Ending March 31
Number of labor hours (q)	4300
Expenses
Direct labor	70950
Indirect labor	12900
Utilities	8410
Supplies	2260
Equipment depreciation	30440
Factory rent	8100
Property taxes	2600
Factory administration	16610
Total expense	152270

3.

Packaging Solutions Corporation
Flexible Budget Performance Report
For the Month Ending March 31
	Actual Results	Spending Variances		Flexible Budget	Activity Variances		Planning Budget
Number of labor hours (q)	4300			4300			4500
Expenses
Direct labor	72570	1620	U	70950	3300	F	74250
Indirect labor	12480	420	F	12900	400	F	13300
Utilities	8940	530	U	8410	140	F	8550
Supplies	2510	250	U	2260	40	F	2300
Equipment depreciation	30440	0	None	30440	560	F	31000
Factory rent	8500	400	U	8100	0	None	8100
Property taxes	2600	0	None	2600	0	None	2600
Factory administration	15980	630	F	16610	140	F	16750
Total expense	154020	1750	U	152270	4580	F	156850