Flexible Budget Performance Report in a Cost Center [LO1, LO4]

Triway Packaging 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 direct labor-hours worked in a month:

Direct labor . . . . . . . . . . . . . . . . . . . . . $16.30q Indirect labor. . . . . . . . . . . . . . . . . . . . $4,300 + $1.80q Utilities . . . . . . . . . . . . . . . . . . . . . . . . $5,600 + $0.70q Supplies . . . . . . . . . . . . . . . . . . . . . . . $1,400 + $0.30q Equipment depreciation . . . . . . . . . . . $18,600 + $2.80q Factory rent . . . . . . . . . . . . . . . . . . . . $8,300 Property taxes . . . . . . . . . . . . . . . . . . . $2,800 Factory administration . . . . . . . . . . . . $13,400 + $0.90q The actual costs incurred in November in the Production Department are listed below:

Actual Cost Incurred in November Direct labor . . . . . . . . . . . . . . . . . . . . . $63,520 Indirect labor. . . . . . . . . . . . . . . . . . . . $10,680 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . $8,790 Supplies . . . . . . . . . . . . . . . . . . . . . . . $2,810 Equipment depreciation . . . . . . . . . . . . $29,240 Factory rent . . . . . . . . . . . . . . . . . . . . $8,700 Property taxes . . . . . . . . . . . . . . . . . . $2,800 Factory administration . . . . . . . . . . . . . $16,230 Required:

1. The company had budgeted for an activity level of 4,000 labor-hours in November. Prepare the Production Department’s planning budget for the month.

2. The company actually worked 3,800 labor-hours in November. Prepare the Production Department’s flexible budget for the month.

3. Prepare the Production Department’s flexible budget performance report for November, including both the activity and spending variances.

4. What aspects of the flexible budget performance report should be brought to management’s attention? Explain.