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1. 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 . . . . . . . . . . . . . . . . . . $ 15.80 q

Indirect labor . . . . . . . . . . . . . . . . . $ 8,200 + $ 1.60 q

Utilities . . . . . . . . . . . . . . . . . . . . . . $ 6,400 + $ 0.80 q

Supplies . . . . . . . . . . . . . . . . . . . . . $ 1,100 + $ 0.40 q

Equipment depreciation . . . . . . . . $ 23,000 + $ 3.70 q

Factory rent . . . . . . . . . . . . . . . . . . $ 8,400

Property taxes . . . . . . . . . . . . . . . . $ 2,100

Factory administration . . . . . . . . . . $ 11,700 + $ 1.90 q

The actual costs incurred in March in the Production Department are listed below:

Actual Cost Incurred in March

Direct labor . . . . . . . . . . . . . . . . . . . . $ 134,730

Indirect labor . . . . . . . . . . . . . . . . . . . $ 19,860

Utilities . . . . . . . . . . . . . . . . . . . . . . . . $ 14,570

Supplies . . . . . . . . . . . . . . . . . . . . . . . $ 4,980

Equipment depreciation . . . . . . . . . . $ 54,080

Factory rent . . . . . . . . . . . . . . . . . . . . $ 8,700

Property taxes . . . . . . . . . . . . . . . . . . $ 2,100

Factory administration . . . . . . . . . . . . $ 26,470

Required:

1. The company had budgeted for an activity level of 8,000 labor- hours in March. Prepare the Production Departments planning budget for the month.

2. The company actually worked 8,400 labor- hours in March. Prepare the Production Depart-ments flexible budget for the month.

3. Prepare the Production Departments flexible budget performance report for March, including both the spending and activity variances.

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