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 $16.40 $4,400 + $2.00 $5,600 + $0.909 $1,300 + $0.109 $18,600 + $3.00 $8,600 $2,500 $13,400 + $0.909 The Production Department planned to work 4,400 labor-hours in March; however, it actually worked 4,200 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 $ 70, 480 $ 12,380 $ 9,950 $ 1,950 $ 31,200 $ 9,000 $ 2,500 $ 16,590 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	4400
Direct labor	72160	=4400*16.4
Indirect labor	13200	=4400+(4400*2)
Utilities	9560	=5600+(4400*0.9)
Supplies	1740	=1300+(4400*0.1)
Equipment Depreciation	31800	=18600+(4400*3)
Factory rent	8600
Property taxes	2500
Factory administration	17360	=13400+(4400*0.9)
Total expenses	156920
2
Flexible Budget
Actual labor hours	4200
Direct labor	68880	=4200*16.4
Indirect labor	12800	=4400+(4200*2)
Utilities	9380	=5600+(4200*0.9)
Supplies	1720	=1300+(4200*0.1)
Equipment Depreciation	31200	=18600+(4200*3)
Factory rent	8600
Property taxes	2500
Factory administration	17180	=13400+(4200*0.9)
Total expenses	152260
3
	Actual	Spending variance		Flexible budget	Activity variance		Planning budget
Labor hours	4200			4200			4400
Direct labor	70480	1600	U	68880	3280	F	72160
Indirect labor	12380	420	F	12800	400	F	13200
Utilities	9950	570	U	9380	180	F	9560
Supplies	1950	230	U	1720	20	F	1740
Equipment Depreciation	31200	0	None	31200	600	F	31800
Factory rent	9000	400	U	8600	0	None	8600
Property taxes	2500	0	None	2500	0	None	2500
Factory administration	16590	590	F	17180	180	F	17360
Total expenses	154050	1790	U	152260	4660	F	156920