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	$1,056,000
Utilities	85,800
Depreciation	42,000
Total	$1,183,800

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	$994,500		68,000
February	1,078,500		76,000
March	1,174,900		84,000

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 $1,183,800. 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	$1.30
Direct labor hours per unit	0.75
Planned monthly unit production	88,000

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

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 $1,056,000 Utilities 85,800 Depreciation 42,000 Total $1,183,800 The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows: Units Amount Spent Produced January 68,000 $994,500 1,078,500 February 76,000 March 1,174,900 84,000 The Machining Department supervisor has been very pleased with this performance because actual expenditures for January-March have been less than the monthly static budget of $1,183,800. 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: $16.00 Wages per hour Utility cost per direct labor hour $1.30 Direct labor hours per unit 0.75 Planned monthly unit production 88,000 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 Wages Utilities Depreciation Total b. Compare the flexible budget with the actual expenditures for the first three months. January February March $ Actual cost Total flexible budget 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