Concept explainers
Planning budget: A planning budget is based on estimations based on the historical financial information.
Flexible budget:A flexible budget is based on the actual performance of the company.
The preparation of planning budget, flexible budget and flexible budget performance report

Answer to Problem 15E
Solution:
1.
Packaging Solutions Corporation
Planning Budget For the Month |
|
Budgeted labor-hours | 8,000 |
Direct labor ($15.80x8,000) | $126,400 |
Indirect labor ($8,200+$1.60x8,000) | $21,000 |
Utilities ($6,400+$0.80x8,000) | $12,800 |
Supplies ($1,100+$0.40x8,000) | $4,300 |
Equipment (23,000+$3.70x8,000) | $52,600 |
Factory rent ($8,400) | $8,400 |
Property taxes ($2,100) | $2,100 |
Factory administration ($11,700+$1.90x8,000) | $26,900 |
Total costs | $254,500 |
2.
Packaging Solutions Corporation
Flexible Budget For the Month |
|
Actual labor-hours | 8,400 |
Direct labor ($15.80x8,400) | $132,720 |
Indirect labor ($8,200+$1.60x8,400) | $21,640 |
Utilities ($6,400+$0.80x8,400) | $13,120 |
Supplies ($1,100+$0.40x8,400) | $4,460 |
Equipment (23,000+$3.70x8,400) | $54,080 |
Factory rent ($8,400) | $8,400 |
Property taxes ($2,100) | $2,100 |
Factory administration ($11,700+$1.90x8,400) | $27,660 |
Total costs | $264,180 |
3.
Packaging Solutions Corporation’s
Flexible Budget Performance Report For the Month |
|||||
Actual
Result |
Flexible
Budget Variance |
Flexible
Budget |
Sales
Volume Variance |
Static
Budget |
|
Actual labor-hours | 8,400 | 8,400 | 8,000 | ||
Direct labor ($15.80q) | $134,730 | $2,010 U | $132,720 | $6,320 U | $126,400 |
Indirect labor ($8,200+$1.60q) | $19,860 | $1,780 F | $21,640 | $640 U | $21,000 |
Utilities ($6,400+$0.80q) | $14,570 | $1,450 U | $13,120 | $320 U | $12,800 |
Supplies ($1,100+$0.40q) | $4,980 | $520 U | $4,460 | $160 U | $4,300 |
Equipment (23,000+$3.70q) | $54,080 | 0 | $54,080 | $1,480 U | $52,600 |
Factory rent ($8,400) | $8,700 | $300 U | $8,400 | 0 | $8,400 |
Property taxes ($2,100) | $2,100 | 0 | $2,100 | 0 | $2,100 |
Factory administration
($11,700+$1.90q) |
$26,470 | $1,190 F | $27,660 | $760 U | $26,900 |
Total costs | $265,490 | $1,310 U | $264,180 | $9,680 U | $254,500 |
4. The management of Packaging Solutions Corporation should focus on the direct labor cost of the production which has the highest unfavorable variance.
Explanation of Solution
The actual results are the value of costs taken as provided in the exercise which is derive from the actual income statement of the company. The flexible budget shows the value of costs which is based on the actual labor-hours of 8,400 hours and the static budget shows the initial estimated value of costs based on the budgeted labor-hours of 8,000 hours.
Given:
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 | $54,080 |
Factory rent | $8,700 |
Property taxes | $2,100 |
Factory administration | $26,470 |
Since Packaging Solutions Corporation has an unfavorable flexible
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