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:

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: Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Cost Formulas $16.609 $4,100 + $ 1.809 $5,500 + $0.609 $1,600 + $0.30q $18,200 + $2.609 $8,100 $3,000 $13,300 + $0.609 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 $ 71,360 $ 11,200 $ 8,530 $ 3,130 $ 29, 120 $ 8,500 $ 3,000 $ 15,170

Answer 1

Ans. 1	Packaging Solutions Corporation
	Production Department Planning Budget
	For the Month Ended March 31
	Labor hours	4400
	Direct labor	$73,040
	Indirect labor	$12,020
	Utilities	$8,140
	Supplies	$2,920
	Equipment depreciation	$29,640
	Factory rent	$8,100
	Property taxes	$3,000
	Factory administration	$15,940
	Total expenses	$152,800
Ans. 2	Packaging Solutions Corporation
	Production Department Flexible Budget
	For the Month Ended March 31
	Labor hours	4200
	Direct labor	$69,720
	Indirect labor	$11,660
	Utilities	$8,020
	Supplies	$2,860
	Equipment depreciation	$29,120
	Factory rent	$8,100
	Property taxes	$3,000
	Factory administration	$15,820
	Total expenses	$148,300
	*Calculations for Flexible budget & Planning budget:
		Planning Budget	Flexible Budget
	Labor hours	4400	4200
	Direct labor	$16.60 * 4,400	$16.60 * 4,200
	Indirect labor	$4,100 + ($1.80*4,400)	$4,100 + ($1.80*4,200)
	Utilities	$5,500 + ($0.60*4,400)	$5,500 + ($0.60*4,200)
	Supplies	$1,600 + ($0.30*4,400)	$1,600 + ($0.30*4,200)
	Equipment depreciation	$18,200 + ($2.60*4,400)	$18,200 + ($2.60*4,200)
	Factory rent	8100	8100
	Property taxes	3000	3000
	Factory administration	$13,300 + ($0.60*4,400)	$13,300 + ($0.60*4,200)
Ans. 3	Packaging Solutions Corporation
	Production Department Flexible Budget Performance Report
	For the Month Ended March 31
		Actual Results	Spending variance		Flexible Budget	Activity variance		Planning Budget
	Labor hours	4200			4200			4400
	Direct labor	$71,360	$1,640	U	$69,720	$3,320	F	$73,040
	Indirect labor	$11,200	$460	F	$11,660	$360	F	$12,020
	Utilities	$8,530	$510	U	$8,020	$120	F	$8,140
	Supplies	$3,130	$270	U	$2,860	$60	F	$2,920
	Equipment depreciation	$29,120	$0	none	$29,120	$520	F	$29,640
	Factory rent	$8,500	$400	U	$8,100	$0	none	$8,100
	Property taxes	$3,000	$0	none	$3,000	$0	none	$3,000
	Factory administration	$15,170	$650	F	$15,820	$120	F	$15,940
	Total expenses	$150,010	$1,710	U	$148,300	$4,500	U	$152,800
	Spending variance   =   Actual results - Flexible budget
	Activity variance =   Flexible budget - Planning budget
	*Flexible budget is prepared on the basis of actual units (machine hours).
	*Fixed expenses remain same as planning budget.
	*Increase in expenses from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
	*Decrease in expenses from flexible budget to actual results & Planning budget to flexible budget =   Favorable.