7. EX.22.03.ALGO (Algorithmic) Static Budget versus Flexible Budget The production supervisor of the Machining Department for Hagerstown Company agreed to the following monthly static budget for the upcoming year: Hagerstown Company Machining Department Monthly Production Budget Wages $443,000 Utilities 38,000 Depreciation 63,000 Total $544,000 The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows: Amount Spent Units Produced May $514,000 116,000 June 490,000 105,000 July 471,000 95,000 The Machining Department supervisor has been very pleased with this performance because actual expenditures for May-July have been significantly less than the monthly static budget of 544,000. However, the plant manager believes that the budget should not remain fixed for every month but should "flex" or adjust to the volume of work that is produced in the Machining Department. Additional budget information for the Machining Department is as follows: Wages per hour $14.00 Utility cost per direct labor hour $1.20 Direct labor hours per unit 0.25 Planned monthly unit production 126,000 a. Prepare a flexible budget for the actual units produced for May, June, and July in the Machining Department. Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places. Hagerstown Company Machining Department Budget For the Three Months Ending July 31 May June Units of production 116,000 105,000 July 95,000 $ $ $ Total $ Supporting calculations: Units of production Hours per unit 116,000 105,000 95,000 X X X Total hours of production Wages per hour x $ x $ x $ Total wages $ $ $ Total hours of production Utility costs per hour x $ x $ x $ Total utilities $ $ $ b. Compare the flexible budget with the actual expenditures for the first three months. May June July Total flexible budget $ $ $ Actual cost Excess of actual cost over budget $ $ What does this comparison suggest? The Machining Department has performed better than originally thought. The department is spending more than would be expected