Exercise 9-16 (Algo) Flexible Budgets in a Cost Center [LO9-1, LO9-2]

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	$16.50q
Indirect labor	$4,800 + $2.00q
Utilities	$5,000 + $0.80q
Supplies	$1,800 + $0.20q
Equipment depreciation	$18,000 + $2.80q
Factory rent	$8,100
Property taxes	$2,500
Factory administration	$13,500 + $0.50q

The Production Department planned to work 4,100 labor-hours in March; however, it actually worked 3,900 labor-hours during the month. Its actual costs incurred in March are listed below:

	Actual Cost Incurred in March
Direct labor	$ 65,970
Indirect labor	$ 12,180
Utilities	$ 8,670
Supplies	$ 2,830
Equipment depreciation	$ 28,920
Factory rent	$ 8,500
Property taxes	$ 2,500
Factory administration	$ 14,780

Required:

1. Prepare the Production Departments planning budget for the month.

2. Prepare the Production Departments flexible budget for the month.

3. Calculate the spending variances for all expense items.

Packaging Solutions Corporation
Production Department Planning Budget
For the Month Ended March 31
Direct labor
Indirect labor
Utilities
Supplies
Equipment depreciation
Factory rent
Property taxes
Factory administration
Total expense	$0

Packaging Solutions Corporation
Production Department Flexible Budget
For the Month Ended March 31
Direct labor
Indirect labor
Utilities
Supplies
Equipment depreciation
Factory rent
Property taxes
Factory administration
Total expense	$0

Packaging Solutions Corporation
Spending Variances
For the Month Ended March 31
	Actual Results	Spending Variances		Flexible Budget
Labor-hours	3,900
Direct labor	$65,970
Indirect labor	12,180
Utilities	8,670
Supplies	2,830
Equipment depreciation	28,920
Factory rent	8,500
Property taxes	2,500
Factory administration	14,780
Total expense	$144,350