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 $16.20q
Indirect labor $4,300 $1.70q
Utilities $5,600 $0.70q
Supplies $1,400 $0.20q
Equipment depreciation $18,400 $2.90q
Factory rent $8,200
Property taxes $2,700
Factory administration $13,200 $0.80q

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.

Direct labor $66,360
Indirect labor $10,620
Utilities 8,930
Supplies 2,450
Equipment depreciation $30,000
Factory rent 8,600
Property taxes $2,700
Factory administration $15,796

Required:
a. Prepare the Production Department's planning budget for the month
b. Prepare the Production Department's flexible budget for the month.

Answer and Explanation:

a. The Preparation of the Production Department's planning budget for the month is shown below:-

Packaging Solutions Corporation

Production Department's planning budget for the month

Particulars                                                      Amount

Budgeted labor hours                                  4,200

Direct labor $16.20 × 4,200                         $68,040

Indirect labor $4,300 + $1.70 × 4,200         $11,440

Utilities $5,600 + $0.70 × 4,200                  $8,540

Supplies $1,400 + $0.20 × 4,200                $2,240

Equipment

depreciation $18,400 + $2.90 × 4,200       $30,580

Factory rent                                                   $8,200

Property taxes                                               $2,700

Factory

administration $13,200 + $0.80 × 4,200   $16,560

Total cost                                                      $148,300

To reach at production Department's planning budget we simply added all the expenses.

b. The Preparation of the Production Department's flexible budget for the month is shown below:-

Packaging Solutions Corporation

Production Department's flexible budget for the month

Particulars                                                      Amount

Actual labor hours                                         4,000

Direct labor $16.20 × 4,000                         $64,800

Indirect labor $4,300 + $1.70 × 4,000         $11,100

Utilities $5,600 + $0.70 × 4,000                  $8,400

Supplies $1,400 + $0.20 × 4,000                $2,200

Equipment

depreciation $18,400 + $2.90 × 4,000       $30,000

Factory rent                                                    $8,200

Property taxes                                                $2,700

Factory

administration $13,200 + $0.80 × 4,000      $16,400

Total cost                                                        $143,800

To reach at production Department's flexible budget we simply added all the expenses.

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