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:

Niland Company Machining Department Monthly Production Budget
Wages	$1,125,000
Utilities	90,000
Depreciation	50,000
Total	$1,265,000

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	$1,100,000		80,000
February	1,200,000		90,000
March	1,250,000		95,000

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 $1,265,000. 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	$1.20
Direct labor hours per unit	0.75
Planned monthly unit production	100,000

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.

Niland Company
Machining Department Budget
For the Three Months Ending March 31
	January	February	March
Units of production	80,000	90,000	95,000
Wages	$	$	$
Utilities
Depreciation
Total	$	$	$
Supporting calculations:
Units of production	80,000	90,000	95,000
Hours per unit	x	x	x
Total hours of production
Wages per hour	x $	x $	x $
Total wages	$	$	$
Total hours of production
Utility costs per hour	x $	x $	x $
Total utilities	$	$	$

Feedback

For each level of production, show wages, utilities, and depreciation.

Learning Objective 2, Learning Objective 4.

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.	No
The department is spending more than would be expected.	Yes