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Static Budget versus Flexible Budget

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

Niland Company Machining Department Monthly Production Budget
Wages	$1,125,000
Utilities	90,000
Depreciation	50,000
Total	$1,265,000

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	$1,100,000		80,000
February	1,200,000		90,000
March	1,250,000		95,000

The Machining Department supervisor has been very pleased with this performance because actual expenditures for JanuaryMarch have been significantly less than the monthly static budget of $1,265,000. 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	$15.00
Utility cost per direct labor hour	$1.20
Direct labor hours per unit	0.75
Planned monthly unit production	100,000

Question Content Area

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

Niland Company Machining Department Budget For the Three Months Ending March 31

	January	February	March
Units of production	80,000	90,000	95,000
AdvertisingRentResearch and developmentSuppliesWages	$- Select -	$- Select -	$- Select -
AdvertisingRentResearch and developmentSuppliesUtilities	- Select -	- Select -	- Select -
AdvertisingDepreciationRentResearch and developmentSupplies	- Select -	- Select -	- Select -
Total	$fill in the blank f83193f7304b07b_13	$fill in the blank f83193f7304b07b_14	$fill in the blank f83193f7304b07b_15
Supporting calculations:
Units of production	80,000	90,000	95,000
Hours per unit	xfill in the blank f83193f7304b07b_16	xfill in the blank f83193f7304b07b_17	xfill in the blank f83193f7304b07b_18
Total hours of production	fill in the blank f83193f7304b07b_19	fill in the blank f83193f7304b07b_20	fill in the blank f83193f7304b07b_21
Wages per hour	x $fill in the blank f83193f7304b07b_22	x $fill in the blank f83193f7304b07b_23	x $fill in the blank f83193f7304b07b_24
Total wages	$fill in the blank f83193f7304b07b_25	$fill in the blank f83193f7304b07b_26	$fill in the blank f83193f7304b07b_27
Total hours of production	fill in the blank f83193f7304b07b_28	fill in the blank f83193f7304b07b_29	fill in the blank f83193f7304b07b_30
Utility costs per hour	x $fill in the blank f83193f7304b07b_31	x $fill in the blank f83193f7304b07b_32	x $fill in the blank f83193f7304b07b_33
Total utilities	$fill in the blank f83193f7304b07b_34	$fill in the blank f83193f7304b07b_35	$fill in the blank f83193f7304b07b_36

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

	January		February		March
Total flexible budget	$fill in the blank 362315064fcafc6_1		$fill in the blank 362315064fcafc6_2		$fill in the blank 362315064fcafc6_3
Actual cost	fill in the blank 362315064fcafc6_4		fill in the blank 362315064fcafc6_5		fill in the blank 362315064fcafc6_6
Excess of actual cost over budget	$fill in the blank 362315064fcafc6_7		$fill in the blank 362315064fcafc6_8		$fill in the blank 362315064fcafc6_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.