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 $$859,000$

Utilities $41,000$

Depreciation $68,000$

Total $$968,000$

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 $$912,00083,000$

February $863,00075,000$

March $827,00068,000$

The Machining Department supervisor has been very pleased with this performance because actual expenditures for January$$March have been less than the monthly static budget of $$968,000.$ 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\mathrm{.}00$

Utility cost per direct labor hour $$0\mathrm{.}90$

Direct labor hours per unit $0\mathrm{.}50$

Planned monthly unit production $90,000$