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 $16.40q Indirect labor $4,100 + $1.30q Utilities $5,400 + $0.80q Supplies $1,600 + $0.20q Equipment depreciation $18,200 + $2.70q Factory rent $8,300 Property taxes $2,900 Factory administration $13,600 + $0.60q 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 $ 65,560 Indirect labor $ 8,610 Utilities $ 9,070 Supplies $ 2,630 Equipment depreciation $ 28,730 Factory rent $ 8,700 Property taxes $ 2,900 Factory administration $ 15,290 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

Answer:

1) Planning Budget

Packaging Solutions Corporation

Production Department Planning Budget

For the Month Ended March 31

Direct labor         66010

Indirect labor         10240

Utilities                  8270

Supplies                  2520

Equipment depreciation 29890

Factory rent          8400

Property taxes   2600

Factory administration 16380

Total expense           144310

2) Flexible budget :

Packaging Solutions Corporation

Production Department Flexible Budget

For the Month Ended March 31

Direct labor            62790

Indirect labor            9960

Utilities                    8130

Supplies                     2480

Equipment depreciation 29310

Factory rent                         8400

Property taxes                 2600

Factory administration         16220

Total expense                  139890

3.Packaging Solutions Corporation

Production Department Flexible Budget Performance Report

For the Month Ended March 31

                           Spending Variances

Direct labor         1540 U

Indirect labor          540 F

Utilities                  530 U

Supplies                  250 U

Equipment depreciation None  

Factory rent          400 U

Property taxes None  

Factory administration 610 F

Total expense   1570 U

Explanation:

Based on the information given from the question, the planning budget will look like the following

1) Planning Budget

Packaging Solutions Corporation

Production Department Planning Budget

For the Month Ended March 31

Direct labor         66010

Indirect labor         10240

Utilities                  8270

Supplies                  2520

Equipment depreciation 29890

Factory rent          8400

Property taxes   2600

Factory administration 16380

Total expense           144310

2) Flexible budget :

Packaging Solutions Corporation

Production Department Flexible Budget

For the Month Ended March 31

Direct labor            62790

Indirect labor            9960

Utilities                    8130

Supplies                     2480

Equipment depreciation 29310

Factory rent                         8400

Property taxes                 2600

Factory administration         16220

Total expense                  139890

3.Packaging Solutions Corporation

Production Department Flexible Budget Performance Report

For the Month Ended March 31

                           Spending Variances

Direct labor         1540 U

Indirect labor          540 F

Utilities                  530 U

Supplies                  250 U

Equipment depreciation None  

Factory rent          400 U

Property taxes None  

Factory administration 610 F

Total expense   1570 U