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	$307,000
Utilities	27,000
Depreciation	44,000
Total	$378,000

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	$357,000		94,000
June	340,000		85,000
July	327,000		77,000

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 378,000. 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	$15.00
Utility cost per direct labor hour	$1.30
Direct labor hours per unit	0.20
Planned monthly unit production	102,000

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	94,000	85,000	77,000
AdvertisingRentResearch and developmentSuppliesWagesWages	$Wages	$Wages	$Wages
AdvertisingRentResearch and developmentSuppliesUtilitiesUtilities	Utilities	Utilities	Utilities
AdvertisingDepreciationRentResearch and developmentSuppliesDepreciation	Depreciation	Depreciation	Depreciation
Total	$fill in the blank 0c6ce5fd4045021_13	$fill in the blank 0c6ce5fd4045021_14	$fill in the blank 0c6ce5fd4045021_15
Supporting calculations:
Units of production	94,000	85,000	77,000
Hours per unit	x fill in the blank 0c6ce5fd4045021_16	x fill in the blank 0c6ce5fd4045021_17	x fill in the blank 0c6ce5fd4045021_18
Total hours of production	fill in the blank 0c6ce5fd4045021_19	fill in the blank 0c6ce5fd4045021_20	fill in the blank 0c6ce5fd4045021_21
Wages per hour	x $fill in the blank 0c6ce5fd4045021_22	x $fill in the blank 0c6ce5fd4045021_23	x $fill in the blank 0c6ce5fd4045021_24
Total wages	$fill in the blank 0c6ce5fd4045021_25	$fill in the blank 0c6ce5fd4045021_26	$fill in the blank 0c6ce5fd4045021_27
Total hours of production	fill in the blank 0c6ce5fd4045021_28	fill in the blank 0c6ce5fd4045021_29	fill in the blank 0c6ce5fd4045021_30
Utility costs per hour	x $fill in the blank 0c6ce5fd4045021_31	x $fill in the blank 0c6ce5fd4045021_32	x $fill in the blank 0c6ce5fd4045021_33
Total utilities	$fill in the blank 0c6ce5fd4045021_34	$fill in the blank 0c6ce5fd4045021_35	$fill in the blank 0c6ce5fd4045021_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 f9faf901103afcd_1	$fill in the blank f9faf901103afcd_2	$fill in the blank f9faf901103afcd_3
Actual cost	fill in the blank f9faf901103afcd_4	fill in the blank f9faf901103afcd_5	fill in the blank f9faf901103afcd_6
Excess of actual cost over budget	$fill in the blank f9faf901103afcd_7	$fill in the blank f9faf901103afcd_8	$fill in the blank f9faf901103afcd_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.