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 $$357,000$

Utilities $20,000$

Depreciation $34,000$

Total $$411,000$

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 $$388,00078,000$

June $370,00071,000$

July $353,00064,000$

The Machining Department supervisor has been very pleased with this performance because actual expenditures for May$$July have been significantly less than the monthly static budget of $411,000.$ However, the plant manager believes that the budget should not remain fixed for every month but should $$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 $$21\mathrm{.}00$

Utility cost per direct labor hour $$1\mathrm{.}20$

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

Planned monthly unit production $85,000$

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 $78,00071,00064,000$

$$-$ Select $-$ $$-$ Select $-$ $$-$ Select $-$

$-$ Select $--$ Select $--$ Select $-$

$-$ Select $--$ Select $--$ Select $-$

Total $Total $Total $Total

Supporting calculations:

Units of production $78,00071,00064,000$

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

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.