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: Direct labor Indirect labor Utilities Supplies Equipment depreciation Factory rent Property taxes Factory administration Cost Formulas $16.109 $4,000 + $1.909 $5,300 + $0.509 $1,500 + $0.409 $18,800 + $3.109 $8,300 $2,900 $13,500 + $0.509 The Production Department planned to work 4,500 labor-hours in March; however, it actually worked 4,300 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 $ 70,770 $ 11,730 $ 7,940 $ 3,510 $ 32,130 $ 8,700 $ 2,900 $ 14,980 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

Answer 1

Ans. 1	Packaging Solutions Corporation
	Production Department Planning Budget
	For the Month Ended March 31
	Labor hours	4500
	Direct labor	72450
	Indirect labor	12550
	Utilities	7550
	Supplies	3300
	Equipment depreciation	32750
	Factory rent	$8,300
	Property taxes	$2,900
	Factory administration	15750
	Total expenses	$155,550
Ans. 2	Packaging Solutions Corporation
	Production Department Flexible Budget
	For the Month Ended March 31
	Labor hours	4300
	Direct labor	69230
	Indirect labor	12170
	Utilities	7450
	Supplies	3220
	Equipment depreciation	32130
	Factory rent	$8,300
	Property taxes	$2,900
	Factory administration	15650
	Total expenses	$151,050
	*Calculations for Flexible budget & Planning budget:
		Planning Budget	Flexible Budget
	Labor hours	4500	4300
	Direct labor	$16.10 * 4,500	$16.10 * 4,300
	Indirect labor	$4,000 + ($1.90*4,500)	$4,000 + ($1.90*4,300)
	Utilities	$5,300 + ($0.50*4,500)	$5,300 + ($0.50*4,300)
	Supplies	$1,500 + ($0.40*4,500)	$1,500 + ($0.40*4,300)
	Equipment depreciation	$18,800 + ($3.10*4,500)	$18,800 + ($3.10*4,300)
	Factory rent	$8,300	$8,300
	Property taxes	$2,900	$2,900
	Factory administration	$13,500 + ($0.50*4,500)	$13,500 + ($0.50*4,300)
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	4300			4300			4500
	Direct labor	$70,770	$1,540	U	$69,230	$3,220	F	72450
	Indirect labor	$11,730	$440	F	$12,170	$380	F	12550
	Utilities	$7,940	$490	U	$7,450	$100	F	7550
	Supplies	$3,510	$290	U	$3,220	$80	F	3300
	Equipment depreciation	$32,130	$0	none	$32,130	$620	F	32750
	Factory rent	$8,700	$400	U	$8,300	$0	none	$8,300
	Property taxes	$2,900	$0	none	$2,900	$0	none	$2,900
	Factory administration	$14,980	$670	F	$15,650	$100	F	15750
	Total expenses	$152,660	$1,610	U	$151,050	$4,500	F	$155,550
	Spending variance   =   Actual results - Flexible budget
	Activity variance =   Flexible budget - Planning budget
	*Flexible budget is prepared on the basis of actual units (labor 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.