Chapter 22 (C) Check for Understan 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 $2,250,000 Utilities 72,000 Depreciation 36,000 Total $2,358,000 May June 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 $1,600,000 40,000 1,950,000 48,000 July 2,200,000 52,000 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 $2,358,000. 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 Utility cost per direct labor hour Direct labor hours per unit Planned monthly unit production 60,000 $25.00 $0.80 1.5 osor THE 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 Chapter 22 (C) Check for Understan Hagerstown Company Machining Department Budget For the Three Months Ending July 31 May June Units of production 40,000 48,000 Wages Utilities Depreciation July 52,000 Total 40,000 48,000 52,000 X X X > XS X Supporting calculations: Units of production Hours per unit Total hours of production Wages per hour Total wages Total hours of production Utility costs per hour Total utilities June July b. Compare the flexible budget with the actual expenditures for the first three months. May Total flexible budget Actual cost Excess of actual cost over budget Yes Chapter 22 (C) Check for Understan Units of production Wages 40,000 48,000 52,000 Utilities Depreciation Total Supporting calculations: Units of production Hours per unit 40,000 48,000 52,000 X Total hours of production Wages per hour Total wages Total hours of production Utility costs per hour Total utilities July b. Compare the flexible budget with the actual expenditures for the first three months May June 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 Yes No