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   Show Me How

   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	$1,243,000
   Utilities	65,000
   Depreciation	109,000
   Total	$1,417,000

   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	$1,335,000		120,000
   June	1,271,000		109,000
   July	1,209,000		98,000

   The Machining Department supervisor has been very pleased with this performance because actual expenditures for MayJuly have been significantly less than the monthly static budget of 1,417,000. 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	0.50
   Planned monthly unit production	130,000

   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	July
   Units of production	120,000	109,000	98,000
   AdvertisingRentResearch and developmentSuppliesWages	$- Select -	$- Select -	$- Select -
   AdvertisingRentResearch and developmentSuppliesUtilities	- Select -	- Select -	- Select -
   AdvertisingDepreciationRentResearch and developmentSupplies	- Select -	- Select -	- Select -
   Total	$fill in the blank 845e4d067fb003c_13	$fill in the blank 845e4d067fb003c_14	$fill in the blank 845e4d067fb003c_15
   Supporting calculations:
   Units of production	120,000	109,000	98,000
   Hours per unit	x fill in the blank 845e4d067fb003c_16	x fill in the blank 845e4d067fb003c_17	x fill in the blank 845e4d067fb003c_18
   Total hours of production	fill in the blank 845e4d067fb003c_19	fill in the blank 845e4d067fb003c_20	fill in the blank 845e4d067fb003c_21
   Wages per hour	x $fill in the blank 845e4d067fb003c_22	x $fill in the blank 845e4d067fb003c_23	x $fill in the blank 845e4d067fb003c_24
   Total wages	$fill in the blank 845e4d067fb003c_25	$fill in the blank 845e4d067fb003c_26	$fill in the blank 845e4d067fb003c_27
   Total hours of production	fill in the blank 845e4d067fb003c_28	fill in the blank 845e4d067fb003c_29	fill in the blank 845e4d067fb003c_30
   Utility costs per hour	x $fill in the blank 845e4d067fb003c_31	x $fill in the blank 845e4d067fb003c_32	x $fill in the blank 845e4d067fb003c_33
   Total utilities	$fill in the blank 845e4d067fb003c_34	$fill in the blank 845e4d067fb003c_35	$fill in the blank 845e4d067fb003c_36

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

   	May	June	July
   Total flexible budget	$fill in the blank 7ba15300e02303a_1	$fill in the blank 7ba15300e02303a_2	$fill in the blank 7ba15300e02303a_3
   Actual cost	fill in the blank 7ba15300e02303a_4	fill in the blank 7ba15300e02303a_5	fill in the blank 7ba15300e02303a_6
   Excess of actual cost over budget	$fill in the blank 7ba15300e02303a_7	$fill in the blank 7ba15300e02303a_8	$fill in the blank 7ba15300e02303a_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