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 $16.109 $4,400 + $1.809 $5,700 + $0.709 $1,600 + $0.309 $18, 200 + $2.500 $8,500 $2.700 $13,300 + $0.600 The Production Department planned to work 4,000 labor hours in March; however, it actually worked 3,800 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 $ 62, 720 $10,780 $ 8.890 $ 3.010 $ 27,700 $ 8,900 $ 2.700 $14.930 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	4000
Direct labor	64400	=4000*16.1
Indirect labor	11600	=4400+(4000*1.8)
Utilities	8500	=5700+(4000*0.7)
Supplies	2800	=1600+(4000*0.3)
Equipment Depreciation	28200	=18200+(4000*2.5)
Factory rent	8500
Property taxes	2700
Factory administration	15700	=13300+(4000*0.6)
Total expenses	142400
2
Flexible Budget
Actual labor hours	3800
Direct labor	61180	=3800*16.1
Indirect labor	11240	=4400+(3800*1.8)
Utilities	8360	=5700+(3800*0.7)
Supplies	2740	=1600+(3800*0.3)
Equipment Depreciation	27700	=18200+(3800*2.5)
Factory rent	8500
Property taxes	2700
Factory administration	15580	=13300+(3800*0.6)
Total expenses	138000
3
	Actual	Spending variance		Flexible budget	Activity variance		Planning budget
Labor hours	3800			3800			4000
Direct labor	62720	1540	U	61180	3220	F	64400
Indirect labor	10780	460	F	11240	360	F	11600
Utilities	8890	530	U	8360	140	F	8500
Supplies	3010	270	U	2740	60	F	2800
Equipment Depreciation	27700	0	None	27700	500	F	28200
Factory rent	8900	400	U	8500	0	None	8500
Property taxes	2700	0	None	2700	0	None	2700
Factory administration	14930	650	F	15580	120	F	15700
Total expenses	139630	1630	U	138000	4400	F	142400