Static Budget versus Flexible Budget

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

The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:

The Machining Department supervisor has been very pleased with this performance because actual expenditures for JanuaryMarch have been significantly less than the monthly static budget of 341,000. 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	$20
Utility cost per direct labor hour	$1.2
Direct labor hours per unit	0.25
Planned monthly unit production	59,000

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

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

	January	February	March
Total flexible budget
Actual cost
Excess of actual cost over budget

What does this comparison suggest?

The Machining Department has performed better than originally thought.	Yes/No
The department is spending more than would be expected.	Yes/No

Niland Company Machining Department Monthly Production Budget Wages Utilities Depreciation Total $294,000 18,000 29,000 $341,000 January February March Amount Spent Units Produced $322,000 54,000 306,000 49,000 291,000 44,000 Niland Company Machining Department Budget For the Three Months Ending March 31 January February Units of production Wages Utilities Depreciation Total Supporting calculations: Units of production Hours per unit Total hours of production Wages per hour Total wages Total hours of production Utility costs per hour Total utilities x $ 54,000 29,000 54,000 X $ tA x $ tA 49,000 29,000 49,000 X $ March 44,000 29,000 44,000 lolo