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 $ 16.10 q Indirect labor $ 4,200 + $ 1.60 q Utilities $ 5,600 + $ 0.30 q Supplies $ 1,600 + $ 0.20 q Equipment depreciation $ 18,500 + $ 2.70 q Factory rent $ 8,500 Property taxes $ 3,000 Factory administration $ 13,600 + $ 0.60 q The actual costs incurred in March in the Production Department are listed below: Actual Cost Incurred in March Direct labor $ 67,550 Indirect labor $ 10,260 Utilities $ 7,280 Supplies $ 2,670 Equipment depreciation $ 29,570 Factory rent $ 8,900 Property taxes $ 3,000 Factory administration $ 15,410

Required: 1. The company had budgeted for an activity level of 4,300 labor-hours in March. Complete the Production Department’s planning budget for the month.

2. The company actually worked 4,100 labor-hours in March. Complete the Production Department’s flexible budget for the month.

3. Calculate the spending variances for all expense items. (Indicate the effect of each variance by selecting  "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

1. Planning budget for 4,300 labor-hours
Direct labor	69230
Indirect labor	11080
Utilities	6890
Supplies	2460
Equipment depreciation	30110
Factory Rent	8500
Property Taxes	3000
Factory administration	16180
Total	147450
2. Flexible budget for 4,100 labor-hours
Direct labor	66010
Indirect labor	10760
Utilities	6830
Supplies	2420
Equipment depreciation	29570
Factory Rent	8500
Property Taxes	3000
Factory administration	16060
Total	143150

3. Spending Variances
Cost item	Flexible Budget	Actual	Spending variances
Direct labor	66010	67550	1540	U
Indirect labor	10760	10260	500	F
Utilities	6830	7280	450	U
Supplies	2420	2670	250	U
Equipment depreciation	29570	29570	0	None
Factory Rent	8500	8900	400	U
Property Taxes	3000	3000	0	None
Factory administration	16060	15410	650	F
Total	143150	144640	1490	U