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 Line Item Description Amount

Wages $312,000

Utilities 16,000

Depreciation 26,000

Total $354,000

The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows: Month Amount Spent Units Produced

May $333,000 52,000

June 321,000 48,000

July 305,000 43,000

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 354,000. 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 Description Amount Wages per hour $22.00 Utility cost per direct labor hour $1.10 Direct labor hours per unit 0.25 Planned monthly unit production 57,000 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 Description May June July Units of production 52,000 48,000 43,000 $Wages $Wages $Wages Utilities Utilities Utilities Depreciation Depreciation Depreciation Total $Total $Total $Total Supporting calculations: Units of production 52,000 48,000 43,000 Hours per unit x Hours per unit x Hours per unit x Hours per unit Total hours of production Total hours of production Total hours of production Total hours of production Wages per hour x $Wages per hour x $Wages per hour x $Wages per hour Total wages $Total wages $Total wages $Total wages Total hours of production Total hours of production Total hours of production Total hours of production Utility costs per hour x $Utility costs per hour x $Utility costs per hour x $Utility costs per hour Total utilities $Total utilities $Total utilities $Total utilities Feedback Area Feedback For each level of production, show wages, utilities, and depreciation. Question Content Area b. Compare the flexible budget with the actual expenditures for the first three months. Line Item Description May June July Total flexible budget fill in the blank 1 of 9$ fill in the blank 2 of 9$ fill in the blank 3 of 9$ Actual cost fill 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 budget fill 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. The department is spending more than would be expected. Feedback Area Feedback Consider performance and spending.