EX 22-3 Static budget versus flexible budget obj. 2, 4 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 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 $1,600,000 40,000 June 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 (Continued Chapter 22 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 $25.00 Utility cost per direct labor hour $0.80 Direct labor hours per unit 1.5 Planned monthly unit production 60,000 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. b. Compare the flexible budget with the actual expenditures for the first three months. What does this comparison suggest? A Flexible Production Budget For the Three Months Ending July 31 May June July Units of production Wages Utilities Depreciation Total . 7 30 31 32 33 34 35 36 37 Supporting calculations: Wages Units of production Hours per unit Total hours of production Wages per hour Total vages Total hours of production Utility cost per hour Total utilities 40 41 b May June July 46 Totalthide budget Actual cost Bcess of actual cost over budget Key essay armwertere