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 $$238,000$

Utilities $15,000$

Depreciation $26,000$

Total $$279,000$

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 $$264,00078,000$

June $252,00071,000$

July $241,00064,000$

The Machining Department supervisor has been very pleased with this performance because actual expenditures for May$$July have been significantly less than the monthly static budget of $279,000.$ However, the plant manager believes that the budget should not remain fixed for every month but should $$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 $$14\mathrm{.}00$

Utility cost per direct labor hour $$0\mathrm{.}90$

Direct labor hours per unit $0\mathrm{.}20$

Planned monthly unit production $85,000$ Hagerstown Company

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

What does this comparison suggest?

The Machining Department has performed better than originally thought. $q,$

The department is spending more than would be expected. $($