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	$15.80q
Indirect labor	$8,200 + $1.60q
Utilities	$6,400 + $0.80q
Supplies	$1,100 + $0.40q
Equipment depreciation	$23,000 + $3.70q
Factory rent	$8,400
Property taxes	$2,100
Factory administration	$11,700 + $1.90q

The Production Department planned to work 8,000 labor-hours in March; however, it actually worked 8,400 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	134,730
Indirect labor	$	19,860
Utilities	$	14,570
Supplies	$	4,980
Equipment depreciation	$	54,080
Factory rent	$	8,700
Property taxes	$	2,100
Factory administration	$	26,470

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 items.

Answer 1

1	Packaging solutions corporations
	Production department planning Budget
	For the month ended March 31
	Labor - hours	q	8,000
	Direct labor	$15.80 q	$1,26,400
	Indirect labor	[$8200 + ($1.60 X q)]	$    21,000
	Utilities	[$6400+ ($0.80 X q)]	$    12,800
	Supplies	[$1,100 + ($0.40 X q)]	$      4,300
	Equipment depreciation	[$23000 + ($3.70 X q)]	$    52,600
	Factory Rent	$                               8,400	$      8,400
	Property taxes	$                               2,100	$      2,100
	Factory administration	[$11700 + ($1.90 X q)]	$    26,900
	Total expense		$2,54,500
2	Packaging solutions corporations
	Production department flexible Budget
	For the month ended March 31
	Labor - hours	q	8,400
	Direct labor	$15.80 q	$1,32,720
	Indirect labor	[$8200 + ($1.60 X q)]	$    21,640
	Utilities	[$6400+ ($0.80 X q)]	$    13,120
	Supplies	[$1,100 + ($0.40 X q)]	$      4,460
	Equipment depreciation	[$23000 + ($3.70 X q)]	$    54,080
	Factory Rent	$                               8,400	$      8,400
	Property taxes	$                               2,100	$      2,100
	Factory administration	[$11700 + ($1.90 X q)]	$    27,660
	Total expense		$2,64,180
3	Packaging solutions corporations
	Production department flexible Budget performance report
	For the month ended March 31
		Actual results	Revenue and Spending Variances		Flexible Budget	Activity Variance		Planning Budget
	Labor - hours	8,400			8,400			8,000
								-
	Direct labor	$                         1,34,730	$      2,010	U	$1,32,720	$      6,320	U	1,26,400
	Indirect labor	$                             19,860	$      1,780	F	$   21,640	$          640	U	21,000
	Utilities	$                             14,570	$      1,450	U	$   13,120	$          320	U	12,800
	Supplies	$                               4,980	$          520	U	$      4,460	$          160	U	4,300
	Equipment depreciation	$                             54,080	$             -	None	$   54,080	$      1,480	U	52,600
	Factory Rent	$                               8,700	$          300	U	$      8,400	$             -	None	8,400
	Property taxes	$                               2,100	$             -	None	$      2,100	$             -	None	2,100
	Factory administration	$                             26,470	$      1,190	F	$   27,660	$          760	U	26,900
	Total expense	$                         2,65,490	$      1,310	U	$2,64,180	$      9,680	U	2,54,500