chapter 9 h 2

Exercise 9-16 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	$16.40q
Indirect labor	$4,500 + $1.50q
Utilities	$5,700 + $0.60q
Supplies	$1,200 + $0.40q
Equipment depreciation	$18,400 + $2.80q
Factory rent	$8,500
Property taxes	$3,000
Factory administration	$13,100 + $0.60q

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:

	Actual Cost Incurred in March
Direct labor	$	70,480
Indirect labor	$	10,280
Utilities	$	8,730
Supplies	$	3,170
Equipment depreciation	$	30,160
Factory rent	$	8,900
Property taxes	$	3,000
Factory administration	$	14,970

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.