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 | $16.10q |
| Indirect labor | $4,300 + $1.70q |
| Utilities | $5,400 + $0.80q |
| Supplies | $1,300 + $0.20q |
| Equipment depreciation | $18,600 + $2.50q |
| Factory rent | $8,100 |
| Property taxes | $2,600 |
| Factory administration | $13,600 + $0.60q |
The Production Department planned to work 4,200 labor-hours in March; however, it actually worked 4,000 labor-hours during the month. Its actual costs incurred in March are listed below:
| Actual Cost Incurred in March | |||
| Direct labor | $ | 65,940 | |
| Indirect labor | $ | 10,620 | |
| Utilities | $ | 9,150 | |
| Supplies | $ | 2,350 | |
| Equipment depreciation | $ | 28,600 | |
| Factory rent | $ | 8,500 | |
| Property taxes | $ | 2,600 | |
| Factory administration | $ | 15,350 | |
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.
(1). Planning budget will be made with q of 4200:
| Cost formula | Planning budget when q = 4200 | |
| Direct labor | $16.10q | 67,620.00 |
| Indirect labor | $4,300 + $1.70q | 11,440.00 |
| Utilities | $5,400 + $0.80q | 8,760.00 |
| Supplies | $1,300 + $0.20q | 2,140.00 |
| Equipment depreciation | $18,600 + $2.50q | 29,100.00 |
| Factory rent | $8,100 | 8,100.00 |
| Property taxes | $2,600 | 2,600.00 |
| Factory administration | $13,600 + $0.60q | 16,120.00 |
Calculations: In the above table the values are computed with q as 4200. Thus direct labor = 16.10*4200 = 67,620. Indirect labor = 4300 + (1.7*4200) = 11,440. Similarly other values have been computed.
(2): Flexible budget will be made with a q of 4,000.
| Cost formula | Flexible budget when q = 4000 | |
| Direct labor | $16.10q | 64,400.00 |
| Indirect labor | $4,300 + $1.70q | 11,100.00 |
| Utilities | $5,400 + $0.80q | 8,600.00 |
| Supplies | $1,300 + $0.20q | 2,100.00 |
| Equipment depreciation | $18,600 + $2.50q | 28,600.00 |
| Factory rent | $8,100 | 8,100.00 |
| Property taxes | $2,600 | 2,600.00 |
| Factory administration | $13,600 + $0.60q | 16,000.00 |
(3): Spending variance = actual figures - flexible budget figures
| Actual results | Flexible budget | Spending variance | Favorbale/Unfavorable | |
| Direct labor | 65,940.00 | 64,400.00 | 1,540.00 | U |
| Indirect labor | 10,620.00 | 11,100.00 | 480.00 | F |
| Utilities | 9,150.00 | 8,600.00 | 550.00 | U |
| Supplies | 2,350.00 | 2,100.00 | 250.00 | U |
| Equipment depreciation | 28,600.00 | 28,600.00 | 0.00 | |
| Factory rent | 8,500.00 | 8,100.00 | 400.00 | U |
| Property taxes | 2,600.00 | 2,600.00 | 0.00 | |
| Factory administration | 15,350.00 | 16,000.00 | 650.00 | F |
When actual expenses > expenses as per flexible budget then the spending variance is unfavorable (U) and when actual expenses < flexible amounts then variance is favorable (F)
Activity variance = flexible budget - planning budget. When flexible expenses < planned expenses then the activity variance is favorable, otherwise it is unfavorable.
| Planning budget | Flexible budget | Activity variance | Favorbale/Unfavorable | |
| Direct labor | 67,620.00 | 64,400.00 | 3,220.00 | F |
| Indirect labor | 11,440.00 | 11,100.00 | 340.00 | F |
| Utilities | 8,760.00 | 8,600.00 | 160.00 | F |
| Supplies | 2,140.00 | 2,100.00 | 40.00 | F |
| Equipment depreciation | 29,100.00 | 28,600.00 | 500.00 | F |
| Factory rent | 8,100.00 | 8,100.00 | 0.00 | |
| Property taxes | 2,600.00 | 2,600.00 | 0.00 | |
| Factory administration | 16,120.00 | 16,000.00 | 120.00 | F |
Packaging Solutions Corporation manufactures and sells a wide variety of packaging products. Performance reports are prepared...
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 $4,800 + $2.00q Utilities $5,600 + $0.60q Supplies $1,300 + $0.20q Equipment depreciation $18,500 + $2.60q Factory rent $8,200 Property taxes $2,600 Factory administration $13,100 +...
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 $16.10q Indirect labor $4,800 + $1.50q Utilities $5,500 + $0.70q Supplies $1,700 + $0.20q Equipment depreciation $18,600 + $2.70q Factory rent $8,100 Property taxes $2,600 Factory administration $13,600 +...
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 $16.40q Indirect labor $4,100 + $1.50q Utilities $5,200 + $0.60q Supplies $1,600 + $0.30q Equipment depreciation $18,200 + $2.50q Factory rent $8,200 Property taxes $2,500 Factory administration $13,500 +...
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 $5,100 + $0.30q Supplies $1,400 + $0.10q Equipment depreciation $18,400 + $2.50q Factory rent $8,300 Property taxes $2,600 Factory administration $13,400 +...
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 $16.10q Indirect labor $4,400 + $1.60q Utilities $5,500 + $0.70q Supplies $1,400 + $0.20q Equipment depreciation $18,400 + $2.80q Factory rent $8,200 Property taxes $2,800 Factory administration $13,500 +...
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 $4,700 + $1.30q Utilities $5,200 + $0.60q Supplies $1,700 + $0.20q Equipment depreciation $18,700 + $2.60q Factory rent $8,500 Property taxes $2,900 Factory administration $13,500 +...
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 $4,500 + $2.10q Utilities $5,100 + $0.70q Supplies $1,800 + $0.20q Equipment depreciation $18,800 + $2.60q Factory rent $8,000 Property taxes $3,000 Factory administration $13,300 +...
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 +...
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 +...
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 $4,800 + $1.90q Utilities $5,100 + $0.80q Supplies $1,600 + $0.20q Equipment depreciation $18,200 + $2.60q Factory rent $8,300 Property taxes $2,500 Factory administration $13,700 +...