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	$379,000
Utilities	21,000
Depreciation	35,000
Total	$435,000

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	$410,000		79,000
February	391,000		72,000
March	374,000		65,000

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 $435,000. 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	$22.00
Utility cost per direct labor hour	$1.20
Direct labor hours per unit	0.20
Planned monthly unit production	86,000

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 627fdf0da07c006_1	fill in the blank 627fdf0da07c006_2	fill in the blank 627fdf0da07c006_3
Wages	$fill in the blank 627fdf0da07c006_4	$fill in the blank 627fdf0da07c006_5	$fill in the blank 627fdf0da07c006_6
Utilities	fill in the blank 627fdf0da07c006_7	fill in the blank 627fdf0da07c006_8	fill in the blank 627fdf0da07c006_9
Depreciation	fill in the blank 627fdf0da07c006_10	fill in the blank 627fdf0da07c006_11	fill in the blank 627fdf0da07c006_12
Total	$fill in the blank 627fdf0da07c006_13	$fill in the blank 627fdf0da07c006_14	$fill in the blank 627fdf0da07c006_15

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

	January	February	March
Actual cost	$fill in the blank e74f6602d022fe6_1	$fill in the blank e74f6602d022fe6_2	$fill in the blank e74f6602d022fe6_3
Total flexible budget	fill in the blank e74f6602d022fe6_4	fill in the blank e74f6602d022fe6_5	fill in the blank e74f6602d022fe6_6
Excess of actual cost over budget	$fill in the blank e74f6602d022fe6_7	$fill in the blank e74f6602d022fe6_8	$fill in the blank e74f6602d022fe6_9

What does this comparison suggest?

The Machining Department has performed better than originally thought.
The department is spending more than would be expected.