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	$1,248,000
Utilities	59,000
Depreciation	99,000
Total	$1,406,000

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	$1,324,000		109,000
June	1,259,000		99,000
July	1,197,000		89,000

The Machining Department supervisor has been very pleased with this performance because actual expenditures for MayJuly have been significantly less than the monthly static budget of 1,406,000. 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	$1.00
Direct labor hours per unit	0.50
Planned monthly unit production	118,000

Question Content Area

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

	May	June	July
Units of production	109,000	99,000	89,000
AdvertisingRentResearch and developmentSuppliesWages	$- Select -	$- Select -	$- Select -
AdvertisingRentResearch and developmentSuppliesUtilities	- Select -	- Select -	- Select -
AdvertisingDepreciationRentResearch and developmentSupplies	- Select -	- Select -	- Select -
Total	$fill in the blank b7a8aef9fff9fd3_13	$fill in the blank b7a8aef9fff9fd3_14	$fill in the blank b7a8aef9fff9fd3_15
Supporting calculations:
Units of production	109,000	99,000	89,000
Hours per unit	x fill in the blank b7a8aef9fff9fd3_16	x fill in the blank b7a8aef9fff9fd3_17	x fill in the blank b7a8aef9fff9fd3_18
Total hours of production	fill in the blank b7a8aef9fff9fd3_19	fill in the blank b7a8aef9fff9fd3_20	fill in the blank b7a8aef9fff9fd3_21
Wages per hour	x $fill in the blank b7a8aef9fff9fd3_22	x $fill in the blank b7a8aef9fff9fd3_23	x $fill in the blank b7a8aef9fff9fd3_24
Total wages	$fill in the blank b7a8aef9fff9fd3_25	$fill in the blank b7a8aef9fff9fd3_26	$fill in the blank b7a8aef9fff9fd3_27
Total hours of production	fill in the blank b7a8aef9fff9fd3_28	fill in the blank b7a8aef9fff9fd3_29	fill in the blank b7a8aef9fff9fd3_30
Utility costs per hour	x $fill in the blank b7a8aef9fff9fd3_31	x $fill in the blank b7a8aef9fff9fd3_32	x $fill in the blank b7a8aef9fff9fd3_33
Total utilities	$fill in the blank b7a8aef9fff9fd3_34	$fill in the blank b7a8aef9fff9fd3_35	$fill in the blank b7a8aef9fff9fd3_36

Question Content Area

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

	May	June	July
Total flexible budget	$fill in the blank 4a7193fc102afdb_1	$fill in the blank 4a7193fc102afdb_2	$fill in the blank 4a7193fc102afdb_3
Actual cost	fill in the blank 4a7193fc102afdb_4	fill in the blank 4a7193fc102afdb_5	fill in the blank 4a7193fc102afdb_6
Excess of actual cost over budget	$fill in the blank 4a7193fc102afdb_7	$fill in the blank 4a7193fc102afdb_8	$fill in the blank 4a7193fc102afdb_9

What does this comparison suggest?

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