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 $16.30q Indirect labor $4,100 + $2.00q Utilities $5,100 + $0.50q Supplies $1,300 + $0.40q Equipment depreciation $18,100 + $2.50q Factory rent $8,500 Property taxes $2,700 Factory administration $13,300 + $0.60q The Production Department planned to work 4,200 labor-hours in March; however, it actually worked 4,000 labor-hours during the month. Its actual costs incurred in March are listed below: Actual Cost Incurred in March Direct labor $ 66,780 Indirect labor $ 11,680 Utilities $ 7,590 Supplies $ 3,190 Equipment depreciation $ 28,100 Factory rent $ 8,900 Property taxes $ 2,700 Factory administration $ 15,050 Required: 1. Prepare the Production Department’s planning budget for the month. 2. Prepare the Production Department’s flexible budget for the month. 3. Calculate the spending variances for all expense items.

Packaging Solutions Corporation

1. Planning Budget

Direct labor                              $68,460

Indirect labor                            $12,500

Utilities                                       $7,200

Supplies                                     $2,980

Equipment depreciation        $28,600

Factory rent                              $8,500

Property taxes                          $2,700

Factory administration           $15,820

2. Flexible Budget

Direct labor                             $65,200

Indirect labor                            $12,100

Utilities                                       $7,100

Supplies                                   $2,900

Equipment depreciation        $28,100

Factory rent                             $8,500

Property taxes                         $2,700

Factory administration          $15,700

3. Spending Variances:

                                                  Flexible  Actual       Spending

                                                  Budget  Budget       Variance

Direct labor                             $65,200  $66,780     $1,580 U

Indirect labor                            $12,100    $11,680       $420 F

Utilities                                       $7,100    $7,590       $490 U

Supplies                                   $2,900     $3,190       $290 U

Equipment depreciation        $28,100  $28,100        $0     None

Factory rent                             $8,500   $8,500        $0     None

Property taxes                         $2,700   $2,700        $0     None

Factory administration          $15,700  $15,050        $650 F

Explanation:

a) Data and Calculations:

Planned labor-hours in March = 4,200

Actual labor-hours in March = 4,000

Cost Formulas

Direct labor $16.30q

Indirect labor $4,100 + $2.00q

Utilities $5,100 + $0.50q

Supplies $1,300 + $0.40q

Equipment depreciation $18,100 + $2.50q

Factory rent $8,500

Property taxes $2,700

Factory administration $13,300 + $0.60q

Actual Cost Incurred In March:

Direct labor                      $ 66,780

Indirect labor                     $ 11,680

Utilities                               $ 7,590

Supplies                             $ 3,190

Equipment depreciation $ 28,100

Factory rent                      $ 8,900

Property taxes                  $ 2,700

Factory administration   $ 15,050

Flexible Budget:

Direct labor $16.30 * 4,000 = $65,200

Indirect labor $4,100 + $2.00  * 4,000 = $12,100

Utilities $5,100 + $0.50 * 4,000 = $7,100

Supplies $1,300 + $0.40 * 4,000 = $2,900

Equipment depreciation $18,100 + $2.50 * 4,000 = $28,100

Factory rent $8,500

Property taxes $2,700

Factory administration $13,300 + $0.60 * 4,000 = $15,700

Planning Budget

Direct labor $16.30 * 4,200 = $68,460

Indirect labor $4,100 + $2.00 * 4,200 = $12,500

Utilities $5,100 + $0.50 * 4,200 $7,200

Supplies $1,300 + $0.40 * 4,200 $2,980

Equipment depreciation $18,100 + $2.50 * 4,200 = $28,600

Factory rent $8,500

Property taxes $2,700

Factory administration $13,300 + $0.60 * 4,200 = $15,820

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