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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

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 $314,000
Utilities 18,000
Depreciation 30,000
Total $362,000

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 $341,000 90,000
February 326,000 82,000
March 311,000 74,000

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 $362,000. 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 $16.00
Utility cost per direct labor hour $0.90
Direct labor hours per unit 0.20
Planned monthly unit production 98,000

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 f8f3a6028f8bfef_1 fill in the blank f8f3a6028f8bfef_2 fill in the blank f8f3a6028f8bfef_3
Wages $fill in the blank f8f3a6028f8bfef_4 $fill in the blank f8f3a6028f8bfef_5 $fill in the blank f8f3a6028f8bfef_6
Utilities fill in the blank f8f3a6028f8bfef_7 fill in the blank f8f3a6028f8bfef_8 fill in the blank f8f3a6028f8bfef_9
Depreciation fill in the blank f8f3a6028f8bfef_10 fill in the blank f8f3a6028f8bfef_11 fill in the blank f8f3a6028f8bfef_12
Total $fill in the blank f8f3a6028f8bfef_13 $fill in the blank f8f3a6028f8bfef_14 $fill in the blank f8f3a6028f8bfef_15

Question Content Area

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

January February March
Actual cost $fill in the blank a9e1ae050033f99_1 $fill in the blank a9e1ae050033f99_2 $fill in the blank a9e1ae050033f99_3
Total flexible budget fill in the blank a9e1ae050033f99_4 fill in the blank a9e1ae050033f99_5 fill in the blank a9e1ae050033f99_6
Excess of actual cost over budget $fill in the blank a9e1ae050033f99_7 $fill in the blank a9e1ae050033f99_8 $fill in the blank a9e1ae050033f99_9

What does this comparison suggest?

The Machining Department has performed better than originally thought.

YesNoNo

The department is spending more than would be expected.

YesNoYes

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