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 BudgetLine Item DescriptionAmountWages$$638,000$Utilities$29,000$Depreciation$48,000$Total$$715,000$

The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:

MonthAmount SpentUnits ProducedMay$$673,000117,000$June$643,000107,000$July$610,00096,000$

The Machining Department supervisor has been very pleased with this performance because actual expenditures for May$$July have been significantly less than the monthly static budget of $715,000.$ However, the plant manager believes that the budget should not remain fixed for every month but should $$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:

Line Item DescriptionAmountWages per hour$$20\mathrm{.}00$Utility cost per direct labor hour$$0\mathrm{.}90$Direct labor hours per unit$0\mathrm{.}25$Planned monthly unit production$128,000$

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 $31$Line Item DescriptionMayJuneJulyUnits of production$117,000107,00096,000$

AdvertisingRentResearch and developmentSuppliesWagesWages

$Wages$Wages$Wages

AdvertisingRentResearch and developmentSuppliesUtilitiesUtilities

UtilitiesUtilitiesUtilities

AdvertisingDepreciationRentResearch and developmentSuppliesDepreciation

DepreciationDepreciationDepreciationTotal$Total$Total$TotalSupporting calculations:Units of production$117,000107,00096,000$Hours per unitx$$Hours per unitx$$Hours per unitx$$Hours per unitTotal hours of productionTotal hours of productionTotal hours of productionTotal hours of productionWages per hourx $Wages per hourx $Wages per hourx $Wages per hourTotal wages$Total wages$Total wages$Total wagesTotal hours of productionTotal hours of productionTotal hours of productionTotal hours of productionUtility costs per hourx $Utility costs per hourx $Utility costs per hourx $Utility costs per hourTotal utilities$Total utilities$Total utilities$Total utilities

Question Content Area

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

Line Item DescriptionMayJuneJulyTotal flexible budgetfill in the blank $1$ of $9$$fill in the blank $2$ of $9$$fill in the blank $3$ of $9$$Actual costfill in the blank $4$ of $9$fill in the blank $5$ of $9$fill in the blank $6$ of $9$Excess of actual cost over budgetfill in the blank $7$ of $9$$fill in the blank $8$ of $9$$fill in the blank $9$ of $9$$

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