1. Prepare the Production Department’s planning budget for the month. 2. 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 spending and activity variances.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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 | $15.80q |
| Indirect labor | $8,200 + $1.60q |
| Utilities | $6,400 + $0.80q |
| Supplies | $1,100 + $0.40q |
| Equipment |
$23,000 + $3.70q |
| Factory rent | $8,400 |
| Property taxes | $2,100 |
| Factory administration | $11,700 + $1.90q |
The Production Department planned to work 8,000 labor-hours in March; however, it actually worked 8,400 labor-hours during the month. Its actual costs incurred in March 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. Prepare the Production Department’s planning budget for the month.
2. 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 spending and activity variances.
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