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	$725,000
Utilities	46,000
Depreciation	76,000
Total	$847,000

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	$799,000		70,000
June	755,000		63,000
July	723,000		57,000

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 847,000. 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	$1.20
Direct labor hours per unit	0.50
Planned monthly unit production	76,000

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.

	May	June	July
Units of production	70,000	63,000	57,000
AdvertisingRentResearch and developmentSuppliesWages	$- Select -	$- Select -	$- Select -
AdvertisingRentResearch and developmentSuppliesUtilities	- Select -	- Select -	- Select -
AdvertisingDepreciationRentResearch and developmentSupplies	- Select -	- Select -	- Select -
Total	$fill in the blank 4db14402400afaf_13	$fill in the blank 4db14402400afaf_14	$fill in the blank 4db14402400afaf_15
Supporting calculations:
Units of production	70,000	63,000	57,000
Hours per unit	x fill in the blank 4db14402400afaf_16	x fill in the blank 4db14402400afaf_17	x fill in the blank 4db14402400afaf_18
Total hours of production	fill in the blank 4db14402400afaf_19	fill in the blank 4db14402400afaf_20	fill in the blank 4db14402400afaf_21
Wages per hour	x $fill in the blank 4db14402400afaf_22	x $fill in the blank 4db14402400afaf_23	x $fill in the blank 4db14402400afaf_24
Total wages	$fill in the blank 4db14402400afaf_25	$fill in the blank 4db14402400afaf_26	$fill in the blank 4db14402400afaf_27
Total hours of production	fill in the blank 4db14402400afaf_28	fill in the blank 4db14402400afaf_29	fill in the blank 4db14402400afaf_30
Utility costs per hour	x $fill in the blank 4db14402400afaf_31	x $fill in the blank 4db14402400afaf_32	x $fill in the blank 4db14402400afaf_33
Total utilities	$fill in the blank 4db14402400afaf_34	$fill in the blank 4db14402400afaf_35	$fill in the blank 4db14402400afaf_36

Question Content Area

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

	May	June	July
Total flexible budget	$fill in the blank 19846ef42fc3fc3_1	$fill in the blank 19846ef42fc3fc3_2	$fill in the blank 19846ef42fc3fc3_3
Actual cost	fill in the blank 19846ef42fc3fc3_4	fill in the blank 19846ef42fc3fc3_5	fill in the blank 19846ef42fc3fc3_6
Excess of actual cost over budget	$fill in the blank 19846ef42fc3fc3_7	$fill in the blank 19846ef42fc3fc3_8	$fill in the blank 19846ef42fc3fc3_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.	YesNo