Packaging Solutions Corporation manufactures and sells a wide variety of packagi
ID: 2584215 • Letter: P
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:
The Production Department planned to work 4,400 labor-hours in March; however, it actually worked 4,200 labor-hours during the month. Its actual costs incurred in March are listed below:
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.
Cost Formulas Direct labor $16.20q Indirect labor $4,300 + $1.30q Utilities $5,200 + $0.60q Supplies $1,500 + $0.10q Equipment depreciation $18,500 + $2.60q Factory rent $8,500 Property taxes $2,800 Factory administration $13,100 + $0.60qExplanation / Answer
1. Planning budget @ 4400 Labor Hours
2. Flexible budget @ 4200 Labor Hours
3. Flexible budget performance report
spending variance
direct labour = ( standard rate -actual rate )actual hours worked
=16.20-16.5714)4200
=-1560 or 1560 unfavourable
fixed overhead = actual expense - budgeted expense
fixed overhead = depriciation +rent +taaxes
budgted fixed o/h =41240
actual =41120
fixed overhead = 41120-41240
= - 120
direct labor 71280 indirect labor 10020 utilities 7840 supplies 1940 equipment depreciation 29940 factory rent 8500 property taxes 2800 factory administration 15740 Total 148060
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