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	$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 + $0.90q

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	$	66,780
Indirect labor	$	11,960
Utilities	$	8,850
Supplies	$	2,650
Equipment depreciation	$	28,600
Factory rent	$	8,700
Property taxes	$	2,500
Factory administration	$	16,710

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.

For the Month Ended March 31
	Actual Results			Flexible Budget			Planning Budget
Labor-hours	4,000
Direct labor	$66,780
Indirect labor	11,960
Utilities	8,850
Supplies	2,650
Equipment depreciation	28,600
Factory rent	8,700
Property taxes	2,500
Factory administration	16,710
Total expense	$146,750

Answer 1

1.Planning Budget Labor Hours 4200 Direct Labour Indirect Labor Utilities Supplies Equipment Depreciation Factory Rent Property Taxes Factory Administration Total Expenses 68,460 4200 x 16.3 12,780 4800+(4200 x 1.9) 8,460 5100+(4200 x 0.8) 2,440 1600+(4200 x 0.2) 29,120 18200+(4200 x 2.6) 8,300 $ 2,500 $ 2,500 17,480 13700+(4200 x 0.9) 149,540 $ 2.Flexible Budget Labor Hours 4000 Direct Labour Indirect Labor Utilities Supplies Equipment Deperciation Factory Rent Property Taxes Factory Administration Total Expenses 65,200 4000 x 16.3 12,400 4800+(4000 x 1.9) 8,300 5100+(4000 x 0.8) 2,400 1600+(4000 x 0.2) 28,600 18200+(4000 x 2.6) 8,300 $ 8,300 2,500 $ 2,500 17,300 13700+(4000 x 0.9) 145,000 Spending Variances Activity Variances Actual Results 4000 Flexible Budget 4000 Planning Budget 4200 Labor Hours $ 1,580 3,260 380 440 550 160 250 F Direct Labour Indirect Labor Utilities Supplies Equipment Depreciation Factory Rent Property Taxes Factory Administration Total Expenses 66,780 11,960 8,850 2,650 28,600 8,700 2,500 16,710 146,750 $ $ $ $ $ $ $ $ $ NONE $ $ $ $ $ $ $ $ $ 65,200 12,400 8,300 2,400 28,600 8,300 2,500 17,300 145,000 $ $ $ $ $ $ $ $ $ $ 68,460 $ 12,780 $ 8,460 $ 2,440 $ 29,120 $ 8,300 $ 2,500 $ 17,480 $149,540 NONE NONE IS 520 . . 180 4,540 400 . 590 1,750 NONE F U Spending Variance = Actual Results - Flexible Budget Spending Variance are favourable when actual expense is less than budgeted expenses. Spending Variance are Unfavourable when actual expense is more than budgeted expenses. Activity Variance = Flexible Budget- Planning Budget Activity Variance are favourable when Standard cost at actual hours is less than budgeted expenses. Activity Variance are unfavourable when Standard cost at actual hours is more than budgeted expenses.