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 $302,000 21,000 Depreciation Total 35,000 $358,000 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 May June $338,000 73,000 67,000 July 325,000 309,000 60,000 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 358,000. 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 $19.00 Utility cost per direct labor hour Direct labor hours per unit Planned monthly unit production $1.30 0.20 80,000 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 Line Item Description 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 Feedback Check My Work May 73,000 June 67,000 July 60,000 73,000 67,000 *0000000 0000000 x 60,000 x S x $ b. Compare the flexible budget with the actual expenditures for the first three months. Total flexible budget May Actual cost Excess of actual cost over budget What does this comparison suggest? The Machining Department has performed better than originally thought. No The department is spending more than would be expected. Yes June July