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 $4,400 + $1.80q Utilities $5,300 + $0.50q Supplies $1,200 + $0.30q Equipment depreciation $18,500 + $2.50q Factory rent $8,200 Property taxes $2,700 Factory administration $13,700 + $0.60q The Production Department planned to work 4,300 labor-hours in March; however, it actually worked 4,100 labor-hours during the month. Its actual costs incurred in March are listed below: Actual Cost Incurred in March Direct labor $ 68,840 Indirect labor $ 11,320 Utilities $ 7,840 Supplies $ 2,700 Equipment depreciation $ 28,750 Factory rent $ 8,600 Property taxes $ 2,700 Factory administration $ 15,510 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
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 | $16.40q |
| Indirect labor | $4,400 + $1.80q |
| Utilities | $5,300 + $0.50q |
| Supplies | $1,200 + $0.30q |
| Equipment |
$18,500 + $2.50q |
| Factory rent | $8,200 |
| Property taxes | $2,700 |
| Factory administration | $13,700 + $0.60q |
The Production Department planned to work 4,300 labor-hours in March; however, it actually worked 4,100 labor-hours during the month. Its actual costs incurred in March are listed below:
| Actual Cost Incurred in March | |||
| Direct labor | $ | 68,840 | |
| Indirect labor | $ | 11,320 | |
| Utilities | $ | 7,840 | |
| Supplies | $ | 2,700 | |
| Equipment depreciation | $ | 28,750 | |
| Factory rent | $ | 8,600 | |
| Property taxes | $ | 2,700 | |
| Factory administration | $ | 15,510 | |
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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