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
Wages	$283,000
Utilities	17,000
Depreciation	28,000
Total	$328,000

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
May	$309,000		61,000
June	297,000		56,000
July	281,000		50,000

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 328,000. 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	$17.00
Utility cost per direct labor hour	$1.00
Direct labor hours per unit	0.25
Planned monthly unit production	67,000

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
	May	June	July
Units of production	61,000	56,000	50,000
	$fill in the blank f36438f43018032_2	$fill in the blank f36438f43018032_3	$fill in the blank f36438f43018032_4
	fill in the blank f36438f43018032_6	fill in the blank f36438f43018032_7	fill in the blank f36438f43018032_8
	fill in the blank f36438f43018032_10	fill in the blank f36438f43018032_11	fill in the blank f36438f43018032_12
Total	$fill in the blank f36438f43018032_13	$fill in the blank f36438f43018032_14	$fill in the blank f36438f43018032_15
Supporting calculations:
Units of production	61,000	56,000	50,000
Hours per unit	x fill in the blank f36438f43018032_16	x fill in the blank f36438f43018032_17	x fill in the blank f36438f43018032_18
Total hours of production	fill in the blank f36438f43018032_19	fill in the blank f36438f43018032_20	fill in the blank f36438f43018032_21
Wages per hour	x $fill in the blank f36438f43018032_22	x $fill in the blank f36438f43018032_23	x $fill in the blank f36438f43018032_24
Total wages	$fill in the blank f36438f43018032_25	$fill in the blank f36438f43018032_26	$fill in the blank f36438f43018032_27
Total hours of production	fill in the blank f36438f43018032_28	fill in the blank f36438f43018032_29	fill in the blank f36438f43018032_30
Utility costs per hour	x $fill in the blank f36438f43018032_31	x $fill in the blank f36438f43018032_32	x $fill in the blank f36438f43018032_33
Total utilities	$fill in the blank f36438f43018032_34	$fill in the blank f36438f43018032_35	$fill in the blank f36438f43018032_36

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

	May	June	July
Total flexible budget	$fill in the blank 5dfd40096046037_1	$fill in the blank 5dfd40096046037_2	$fill in the blank 5dfd40096046037_3
Actual cost	fill in the blank 5dfd40096046037_4	fill in the blank 5dfd40096046037_5	fill in the blank 5dfd40096046037_6
Excess of actual cost over budget	$fill in the blank 5dfd40096046037_7	$fill in the blank 5dfd40096046037_8	$fill in the blank 5dfd40096046037_9

What does this comparison suggest?

The Machining Department has performed better than originally thought.
The department is spending more than would be expected.