Static Budget versus Flexible Budget

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

Celtic Company Machining Department Monthly Production Budget
Wages	$554,000
Utilities	38,000
Depreciation	64,000
Total	$656,000

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
January	$619,000		107,000
February	595,000		98,000
March	567,000		88,000

The Machining Department supervisor has been very pleased with this performance because actual expenditures for JanuaryMarch have been less than the monthly static budget of $656,000. 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	$19.00
Utility cost per direct labor hour	$1.30
Direct labor hours per unit	0.25
Planned monthly unit production	117,000

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

Celtic Company-Machining Department
Flexible Production Budget
For the Three Months Ending March 31
	January	February	March
Units of production	fill in the blank	fill in the blank	fill in the blank
Wages	$fill in the blank	$fill in the blank	$fill in the blank
Utilities	fill in the blank	fill in the blank	fill in the blank
Depreciation	fill in the blank	fill in the blank	fill in the blank
Total	$fill in the blank	$fill in the blank	$fill in the blank

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

	January	February	March
Actual cost	$fill in the blank	$fill in the blank	$fill in the blank
Total flexible budget	fill in the blank	fill in the blank	fill in the blank
Excess of actual cost over budget	$fill in the blank	$fill in the blank	$fill in the blank

What does this comparison suggest?

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