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 Depreciation $415,000 27,000 Total 45,000 $487,000 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 $459,000 439,000 420,000 112,000 June July 102,000 92,000 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 487,000. 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 $17.00 Utility cost per direct labor hour $1.10 Direct labor hours per unit 0.20 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 Total Supporting calculations: Units of production Hours per unit Total hours of production Wages per hour Total wages Total hours of production May 112,000 June July 102,000 92,000 112,000 102,000 92,000 X X X x $ x $ x $ Utility costs per hour x $ x $ x $ Total utilities 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 May What does this comparison suggest? The Machining Department has performed better than originally thought. The department is spending more than would be expected. June July