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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 | $ | 16.30 | q | |||
| Indirect labor | $ | 4,600 | + | $ | 1.40 | q |
| Utilities | $ | 5,300 | + | $ | 0.80 | q |
| Supplies | $ | 1,200 | + | $ | 0.30 | q |
| Equipment depreciation | $ | 18,800 | + | $ | 2.80 | q |
| Factory rent | $ | 8,100 | ||||
| Property taxes | $ | 2,800 | ||||
| Factory administration | $ | 13,500 | + | $ | 0.80 | q |
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The actual costs incurred in March in the Production Department are listed below: |
| Actual Cost Incurred in March | |||
| Direct labor | $ | 63,520 | |
| Indirect labor | $ | 9,380 | |
| Utilities | $ | 8,890 | |
| Supplies | $ | 2,610 | |
| Equipment depreciation | $ | 29,440 | |
| Factory rent | $ | 8,500 | |
| Property taxes | $ | 2,800 | |
| Factory administration | $ | 15,930 | |
| Required: | |
| 1. |
The company had budgeted for an activity level of 4,000 labor-hours in March. Complete the Production Department’s planning budget for the month. |
| 2. |
The company actually worked 3,800 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.) |
References
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| 1 | ||
| Planning budget | ||
| Direct labor | 65200 | |
| Indirect labor | 10200 | |
| Utilities | 8500 | |
| Supplies | 2400 | |
| Equipment depreciation | 30000 | |
| Factory rent | 8100 | |
| Property taxes | 2800 | |
| Factory administration | 16700 | |
| Total expenses | 143900 | |
| 2 | ||
| Flexible budget | ||
| Direct labor | 61940 | |
| Indirect labor | 9920 | |
| Utilities | 8340 | |
| Supplies | 2340 | |
| Equipment depreciation | 29440 | |
| Factory rent | 8100 | |
| Property taxes | 2800 | |
| Factory administration | 16540 | |
| Total expenses | 139420 | |
| 3 | Spending variances | |
| Direct labor | 1580 | U |
| Indirect labor | 540 | F |
| Utilities | 550 | U |
| Supplies | 270 | U |
| Equipment depreciation | 0 | None |
| Factory rent | 400 | U |
| Property taxes | 0 | None |
| Factory administration | 610 | F |
| Total expenses | 1650 | U |
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