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 $4,700 $1.50q
Utilities $5,700 $0.50q
Supplies $1,600 $0.30q
Equipment depreciation $18,500 $3.10q
Factory rent $8,600
Property taxes $2,600
Factory administration $13,400 $0.80q
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 ... $1,34,730
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 Department’s planning budget for the month.
2. The company actually worked 8.400 labor-hours in March. Prepare the Production Department’s flexible budget for the month.
3. Prepare the Production Department’s flexible budget performance report for March, including both the activity and spending variances.
4. What aspects of the flexible budget performance report should be brought to management's attention? Explain.