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 Utilities Depreciation $737,000 30,000 50,000 $817,000 Total 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 $769,000 733,000 697,000 123,000 112,000 101,000 January FebruarY March 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 817,000. 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 Utility cost per direct labor hour Direct labor hours per unit Planned monthly unit production 134,000 $22 $0.9 0.25 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 123,000 112,000 101,000 Units of production Wages Utilities Depreciation 27,675 50,000 754,175 616,000 25,200 50,000 691,200 555,500 v 22,725 50,000 v 628,225 Total Supporting calculations Units of production Hours per unit Total hours of production Wages per hour 123,000 112,000 101,000 0.25 | 0.25 0.25 30,750 28,000 25,250 22x 676,500 V 30,750 V 0.9 555,500 V 25,250 v 0.9 | Total wages 616,000 | Total hours of production 28,000 Utility costs per hour 0.9x Total utilities 27,675 25,200 V 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. The department is spending more than would be expected