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	$287,000
Utilities	25,000
Depreciation	41,000
Total	$353,000

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	$333,000		94,000
February	317,000		85,000
March	305,000		77,000

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 353,000. 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	$14
Utility cost per direct labor hour	$1.2
Direct labor hours per unit	0.2
Planned monthly unit production	102,000

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	94,000	85,000	77,000
	$fill in the blank 241ec6fe3f96026_2	$fill in the blank 241ec6fe3f96026_3	$fill in the blank 241ec6fe3f96026_4
	fill in the blank 241ec6fe3f96026_6	fill in the blank 241ec6fe3f96026_7	fill in the blank 241ec6fe3f96026_8
	fill in the blank 241ec6fe3f96026_10	fill in the blank 241ec6fe3f96026_11	fill in the blank 241ec6fe3f96026_12
Total	$fill in the blank 241ec6fe3f96026_13	$fill in the blank 241ec6fe3f96026_14	$fill in the blank 241ec6fe3f96026_15
Supporting calculations:
Units of production	94,000	85,000	77,000
Hours per unit	xfill in the blank 241ec6fe3f96026_16	xfill in the blank 241ec6fe3f96026_17	xfill in the blank 241ec6fe3f96026_18
Total hours of production	fill in the blank 241ec6fe3f96026_19	fill in the blank 241ec6fe3f96026_20	fill in the blank 241ec6fe3f96026_21
Wages per hour	x $fill in the blank 241ec6fe3f96026_22	x $fill in the blank 241ec6fe3f96026_23	x $fill in the blank 241ec6fe3f96026_24
Total wages	$fill in the blank 241ec6fe3f96026_25	$fill in the blank 241ec6fe3f96026_26	$fill in the blank 241ec6fe3f96026_27
Total hours of production	fill in the blank 241ec6fe3f96026_28	fill in the blank 241ec6fe3f96026_29	fill in the blank 241ec6fe3f96026_30
Utility costs per hour	x $fill in the blank 241ec6fe3f96026_31	x $fill in the blank 241ec6fe3f96026_32	x $fill in the blank 241ec6fe3f96026_33
Total utilities	$fill in the blank 241ec6fe3f96026_34	$fill in the blank 241ec6fe3f96026_35	$fill in the blank 241ec6fe3f96026_36

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

	January	February	March
Total flexible budget	$fill in the blank 23f768f7ffe006c_1	$fill in the blank 23f768f7ffe006c_2	$fill in the blank 23f768f7ffe006c_3
Actual cost	fill in the blank 23f768f7ffe006c_4	fill in the blank 23f768f7ffe006c_5	fill in the blank 23f768f7ffe006c_6
Excess of actual cost over budget	$fill in the blank 23f768f7ffe006c_7	$fill in the blank 23f768f7ffe006c_8	$fill in the blank 23f768f7ffe006c_9

What does this comparison suggest?

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