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	$16.20q
Indirect labor	$4,100 + $1.40q
Utilities	$5,300 + $0.70q
Supplies	$1,700 + $0.40q
Equipment depreciation	$18,400 + $2.90q
Factory rent	$8,500
Property taxes	$2,600
Factory administration	$13,300 + $0.70q

The Production Department planned to work 4,100 labor-hours in March; however, it actually worked 3,900 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$	64,740
Indirect labor	$	9,020
Utilities	$	8,560
Supplies	$	3,550
Equipment depreciation	$	29,710
Factory rent	$	8,900
Property taxes	$	2,600
Factory administration	$	15,400

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

		planning Budget
		fixed	variable
Direct labor			16.2		66420
indirect labor		4,100	1.4		9840
utilities		5,300	0.7		8170
supplies		1,700	0.4		3340
Equipment depreciation		18,400	2.9		30290
Factory rent		8,500			8,500
property taxes		2,600			2,600
factory administration		13,300	0.7		16170
total expense		53,900	22.3		145330
	the highlighte figures are the answers
2)	labor hours				3,900
		Flexible budget
		fixed	variable
Direct labor			16.2		63180
indirect labor		4,100	1.4		9560
utilities		5,300	0.7		8030
supplies		1,700	0.4		3260
Equipment depreciation		18,400	2.9		29710
Factory rent		8,500			8,500
property taxes		2,600			2,600
factory administration		13,300	0.7		16030
total expense		53,900	22.3		140870

3)		Spending variance
			Actual	spending variance		Flexible	Activity variance		Planned
			result			budget			budget
labor hours			3,900			3,900			4,100
Direct labor			64,740	1,560	U	63180	3240	F	66420
indirect labor			9,020	540	F	9560	280	F	9840
utilities			8,560	530	U	8030	140	F	8170
supplies			3,550	290	U	3260	80	F	3340
Equipment depreciation			29,710	0	N	29710	580	F	30290
Factory rent			8,900	400	U	8,500	0	N	8,500
property taxes			2,600	0	N	2,600	0	N	2,600
factory administration			15,400	630	F	16030	140	F	16170
total expense			142,480	1,610	U	140870	4460	N	145330