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	$518,000
Utilities	23,000
Depreciation	39,000
Total	$580,000

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	$546,000		95,000
June	523,000		87,000
July	496,000		78,000

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 580,000. 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	$20.00
Utility cost per direct labor hour	$0.90
Direct labor hours per unit	0.25
Planned monthly unit production	104,000

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
	May	June	July
Units of production	95,000	87,000	78,000
	$fill in the blank 0ae9a3ffb073fc7_2	$fill in the blank 0ae9a3ffb073fc7_3	$fill in the blank 0ae9a3ffb073fc7_4
	fill in the blank 0ae9a3ffb073fc7_6	fill in the blank 0ae9a3ffb073fc7_7	fill in the blank 0ae9a3ffb073fc7_8
	fill in the blank 0ae9a3ffb073fc7_10	fill in the blank 0ae9a3ffb073fc7_11	fill in the blank 0ae9a3ffb073fc7_12
Total	$fill in the blank 0ae9a3ffb073fc7_13	$fill in the blank 0ae9a3ffb073fc7_14	$fill in the blank 0ae9a3ffb073fc7_15
Supporting calculations:
Units of production	95,000	87,000	78,000
Hours per unit	x fill in the blank 0ae9a3ffb073fc7_16	x fill in the blank 0ae9a3ffb073fc7_17	x fill in the blank 0ae9a3ffb073fc7_18
Total hours of production	fill in the blank 0ae9a3ffb073fc7_19	fill in the blank 0ae9a3ffb073fc7_20	fill in the blank 0ae9a3ffb073fc7_21
Wages per hour	x $fill in the blank 0ae9a3ffb073fc7_22	x $fill in the blank 0ae9a3ffb073fc7_23	x $fill in the blank 0ae9a3ffb073fc7_24
Total wages	$fill in the blank 0ae9a3ffb073fc7_25	$fill in the blank 0ae9a3ffb073fc7_26	$fill in the blank 0ae9a3ffb073fc7_27
Total hours of production	fill in the blank 0ae9a3ffb073fc7_28	fill in the blank 0ae9a3ffb073fc7_29	fill in the blank 0ae9a3ffb073fc7_30
Utility costs per hour	x $fill in the blank 0ae9a3ffb073fc7_31	x $fill in the blank 0ae9a3ffb073fc7_32	x $fill in the blank 0ae9a3ffb073fc7_33
Total utilities	$fill in the blank 0ae9a3ffb073fc7_34	$fill in the blank 0ae9a3ffb073fc7_35	$fill in the blank 0ae9a3ffb073fc7_36

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

	May	June	July
Total flexible budget	$fill in the blank 47822408afd2011_1	$fill in the blank 47822408afd2011_2	$fill in the blank 47822408afd2011_3
Actual cost	fill in the blank 47822408afd2011_4	fill in the blank 47822408afd2011_5	fill in the blank 47822408afd2011_6
Excess of actual cost over budget	$fill in the blank 47822408afd2011_7	$fill in the blank 47822408afd2011_8	$fill in the blank 47822408afd2011_9

What does this comparison suggest?

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