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Static Budget versus Flexible Budget

The production supervisor of the Machining Department for Celtic Company agreed to the following monthly static budget for the upcoming year:

Celtic Company Machining Department Monthly Production Budget
Wages	$456,000
Utilities	24,000
Depreciation	40,000
Total	$520,000

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
January	$490,000		110,000
February	466,000		100,000
March	444,000		90,000

The Machining Department supervisor has been very pleased with this performance because actual expenditures for JanuaryMarch have been less than the monthly static budget of $520,000. 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	$19.00
Utility cost per direct labor hour	$1.00
Direct labor hours per unit	0.20
Planned monthly unit production	120,000

Question Content Area

a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume that depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.

Celtic Company-Machining Department Flexible Production Budget For the Three Months Ending March 31

January	February	March
Units of production	fill in the blank 01823bfee03b018_1	fill in the blank 01823bfee03b018_2	fill in the blank 01823bfee03b018_3
Wages	$fill in the blank 01823bfee03b018_4	$fill in the blank 01823bfee03b018_5	$fill in the blank 01823bfee03b018_6
Utilities	fill in the blank 01823bfee03b018_7	fill in the blank 01823bfee03b018_8	fill in the blank 01823bfee03b018_9
Depreciation	fill in the blank 01823bfee03b018_10	fill in the blank 01823bfee03b018_11	fill in the blank 01823bfee03b018_12
Total

b. Compare the flexible budget with the actual expenditures for the first three months.

	January	February	March
Actual cost	$fill in the blank 91387003602d02c_1	$fill in the blank 91387003602d02c_2	$fill in the blank 91387003602d02c_3
Total flexible budget	fill in the blank 91387003602d02c_4	fill in the blank 91387003602d02c_5	fill in the blank 91387003602d02c_6
Excess of actual cost over budget	$fill in the blank 91387003602d02c_7	$fill in the blank 91387003602d02c_8	$fill in the blank 91387003602d02c_9

What does this comparison suggest?

The Machining Department has performed better than originally thought.	YesNo
The department is spending more than would be expected.	YesNo