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 $16.489 $4,300 + $1.569 $5,880 + $0.50 $1,800 + $0.209 $18,788 + $2.809 $8,180 $2,600 $13,000 + $0.889 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 Mar $ 70,480 $ 10, ese $ 8,390 $ 2,898 $ 30.40 $ 8.50 $ 2,60 15,58 Required: 1. Prepare the Production Department's planning budget for the month 2. Prepare the production Department's flexible budget for the month 3. Calculate the spending variances for all expense tems

Answer 1

Requirement 1:

Planning budget
	Variable cost	Fixed Costs	Total
No. of labor hours			4,400
Expenses:
Direct labor	$          72,160		$    72,160
Indirect labor	$            6,600	$         4,300	$    10,900
Utilities	$            2,200	$         5,800	$      8,000
Supplies	$                880	$         1,800	$      2,680
Equipment depreciation	$          12,320	$      18,700	$    31,020
Factory rent		$         8,100	$      8,100
Property taxes		$         2,600	$      2,600
Factory administration	$            3,520	$      13,000	$    16,520
Total expenses			$ 151,980

Variable cost = 4,400 direct labor hours x Variable cost per direct labor hour

Requirement 2:

Flexible
	Variable cost	Fixed Costs	Total
No. of labor hours			4,200
Expenses:
Direct labor	$          68,880		$    68,880
Indirect labor	$            6,300	$         4,300	$    10,600
Utilities	$            2,100	$         5,800	$      7,900
Supplies	$                840	$         1,800	$      2,640
Equipment depreciation	$          11,760	$      18,700	$    30,460
Factory rent		$         8,100	$      8,100
Property taxes		$         2,600	$      2,600
Factory administration	$            3,360	$      13,000	$    16,360
Total expenses			$ 147,540

Variable cost per unit = 4,200 labor hours x variable cost per direct labor hour

Requirement 3:

	Actual	Spending variance		Flexible
Direct labor	$    70,480	$    1,600	U	$    68,880
Indirect labor	$    10,080	$        520	F	$    10,600
Utilities	$      8,390	$        490	U	$      7,900
Supplies	$      2,890	$        250	U	$      2,640
Equipment depreciation	$    30,460	$             -	None	$    30,460
Factory rent	$      8,500	$        400	U	$      8,100
Property taxes	$      2,600	$             -	None	$      2,600
Factory administration	$    15,750	$        610	F	$    16,360
Total expenses	$ 149,150			$ 147,540