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

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

May$-$July have been significantly less than the monthly static budget of $786,000.$ 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:

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.

Hagerstown Company

Machining Department Budget

For the Three Months Ending July $31$

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

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.

The department is spending more than would be expected.