Managerial Accounting
Managerial Accounting
15th Edition
ISBN: 9780078025631
Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor
Publisher: McGraw-Hill Education
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Chapter 9, Problem 15E
To determine

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

Expert Solution & Answer
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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
Conclusion

Since Packaging Solutions Corporation has an unfavorable flexible budget variance of $1,310 and sales volume variance of $9,680, so the company has decreased in the net operating income. The variance analysis of costs helps a management in determining efficiency of the company in controlling their cost and preparing the budget for future period.

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Chapter 9 Solutions

Managerial Accounting

Ch. 9 - 9-11 What assumption is implicitly made about cost...Ch. 9 - The Excel worksheet form that appears below is to...Ch. 9 - The Excel worksheet form that appears below is to...Ch. 9 - Adger Corporation is a service company that...Ch. 9 - Prob. 2F15Ch. 9 - Prob. 3F15Ch. 9 - Adger Corporation is a service company that...Ch. 9 - Adger Corporation is a service company that...Ch. 9 - Adger Corporation is a service company that...Ch. 9 - L09-1, LO9-2, LO9-3 Adger Corporation is a...Ch. 9 - Prob. 8F15Ch. 9 - Adger Corporation is a service company that...Ch. 9 - Prob. 10F15Ch. 9 - Prob. 11F15Ch. 9 - Prob. 12F15Ch. 9 - Prob. 13F15Ch. 9 - Prob. 14F15Ch. 9 - Prob. 15F15Ch. 9 - Prob. 1ECh. 9 - Prob. 2ECh. 9 - EXERCISE 9-3 Revenue and Spending Variances...Ch. 9 - Prob. 4ECh. 9 - Prob. 5ECh. 9 - EXERCISE 9-6 Critique a Variance ReportLO9-6 The...Ch. 9 - Prob. 7ECh. 9 - EXERCISE 9-8 Flexible Budgets and Activity...Ch. 9 - Fixed Cost...Ch. 9 - ...Ch. 9 - EXERCISE 9-11 Flexible Budget L09-1 Refer to the...Ch. 9 - EXERCISE 9-12 Activity Variances LO9-2 Refer to...Ch. 9 - ...Ch. 9 - EXERCISE 9-14 Prepare a Flexible Budget...Ch. 9 - Prob. 15ECh. 9 - EXERCISE 9-16 Flexible Budgets and Revenue and...Ch. 9 - EXERCISE 9-17 Flexible Budget Performance Report...Ch. 9 - Prob. 18ECh. 9 - Prob. 19PCh. 9 - PROBLEM 9-20 Activity and Spending Variances...Ch. 9 - Prob. 21PCh. 9 - Prob. 22PCh. 9 - Prob. 23PCh. 9 - PROBLEM 9-24 Critiquing a Report; Preparing a...Ch. 9 - PROBLEM 9-25 Critiquing a Variance Report;...Ch. 9 - Prob. 26CCh. 9 - ...Ch. 9 - Prob. 28C
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