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Static Budget versus Flexible Budget The production supervisor of the Machining Department for Celtic Company agreed to the following monthly static budget for the upcoming

Static Budget versus Flexible Budget

The production supervisor of the Machining Department for Celtic Company agreed to the following monthly static budget for the upcoming year:

Celtic Company Machining Department Monthly Production Budget
Wages $306,000
Utilities 13,000
Depreciation 21,000
Total $340,000

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
January $319,000 51,000
February 307,000 47,000
March 290,000 42,000

The Machining Department supervisor has been very pleased with this performance because actual expenditures for JanuaryMarch have been less than the monthly static budget of $340,000. 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 $22.00
Utility cost per direct labor hour $0.90
Direct labor hours per unit 0.25
Planned monthly unit production 56,000

Question Content Area

a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume that depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.

Celtic Company-Machining Department Flexible Production Budget For the Three Months Ending March 31
January February March
Units of production fill in the blank f34129ff6004002_1 fill in the blank f34129ff6004002_2 fill in the blank f34129ff6004002_3
Wages $fill in the blank f34129ff6004002_4 $fill in the blank f34129ff6004002_5 $fill in the blank f34129ff6004002_6
Utilities fill in the blank f34129ff6004002_7 fill in the blank f34129ff6004002_8 fill in the blank f34129ff6004002_9
Depreciation fill in the blank f34129ff6004002_10 fill in the blank f34129ff6004002_11 fill in the blank f34129ff6004002_12
Total $fill in the blank f34129ff6004002_13 $fill in the blank f34129ff6004002_14 $fill in the blank f34129ff6004002_15

Question Content Area

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

January February March
Actual cost $fill in the blank 2b10cf04d00cfa5_1 $fill in the blank 2b10cf04d00cfa5_2 $fill in the blank 2b10cf04d00cfa5_3
Total flexible budget fill in the blank 2b10cf04d00cfa5_4 fill in the blank 2b10cf04d00cfa5_5 fill in the blank 2b10cf04d00cfa5_6
Excess of actual cost over budget $fill in the blank 2b10cf04d00cfa5_7 $fill in the blank 2b10cf04d00cfa5_8 $fill in the blank 2b10cf04d00cfa5_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.

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