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 $414,000 Utilities 28,000 Depreciation 47,000 Total $489,000 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 $462,000 100,000 February 441,000 91,000 March 422,000 82,000 The Machining Department supervisor has been very pleased with this performance because actual expenditures for January-March have been significantly less than the monthly static budget of 489,000. 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 Utility cost per direct labor hour $1.3 Direct labor hours per unit 0.2 Planned monthly unit production 109,000 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 100,000 91,000 82,000 Wages Utilities Depreciation Total Supporting calculations: Units of production 100,000 91,000 82,000 Hours per unit 0.20 0.20 0.20 Total hours of production 20,000 18,200 16,400 Wages per hour XS 19 XS 19 XS 19 Total wages V! Total hours of production Utility costs per hour XS 1.30 XS 1.30 X $ 1.30 Total utilities WA s b. Compare the flexible budget with the actual expenditures for the first three months. January February March Total flexible budget $ Actual cost Excess of actual cost over budget What does this comparison suggest? The Machining Department has performed better than originally thought. Yes / No The department is spending more than would be expected