Static Budget versus Flexible Budget The production supervisor of the Machining Department for Hagerstown Company agreed to the following monthly static budget for the upcoming year: Hagerstown Company Machining Department Monthly Production Budget Wages Utilities $401,000 19,000 Depreciation Total 32,000 $452,000 The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows: May Amount Spent Units Produced 70,000 June July $425,000 401,000 384,000 63,000 57,000 The Machining Department supervisor has been very pleased with this performance because actual expenditures for May-July have been significantly less than the monthly static budget of 452,000. 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 $21.00 $1.00 The Machining Department supervisor has been very pleased with this performance because actual expenditures for May-July have been significantly less than the monthly static budget of 452,000. 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 $21.00 Utility cost per direct labor hour Direct labor hours per unit $1.00 0.25 76,000 Planned monthly unit production a. Prepare a flexible budget for the actual units produced for May, June, and July in the Machining Department. Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places. Hagerstown Company Machining Department Budget For the Three Months Ending July 31 Units of production Wages Utilities Depreciation Total Supporting calculations: Units of production May 70,000 June July 63,000 $7,000 70,000 63,000 57,000 Hagerstown Company Machining Department Budget For the Three Months Ending July 31 May June July Units of production Wages Utilities Depreciation Total Supporting calculations: Units of production Hours per unit Total hours of production Wages per hour Total wages Total hours of production Utility costs per hour Total utilities 70,000 00000000000 A x $ 63,000 57,000 63,000 00000000000 b. Compare the flexible budget with the actual expenditures for the first three months. Total flexible budget Actual cost < Excess of actual cost over budget What does this comparison suggest? May June The Machining Department has performed better than originally thought. The department is spending more than would be expected. No Yes July