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	$216,000
Utilities	18,000
Depreciation	30,000
Total	$264,000

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	$249,000		62,000
February	241,000		57,000
March	229,000		51,000

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 264,000. 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	$16
Utility cost per direct labor hour	$1.3
Direct labor hours per unit	0.2
Planned monthly unit production	68,000

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	62,000	57,000	51,000
	$fill in the blank 8b4a8c020018018_2	$fill in the blank 8b4a8c020018018_3	$fill in the blank 8b4a8c020018018_4
	fill in the blank 8b4a8c020018018_6	fill in the blank 8b4a8c020018018_7	fill in the blank 8b4a8c020018018_8
	fill in the blank 8b4a8c020018018_10	fill in the blank 8b4a8c020018018_11	fill in the blank 8b4a8c020018018_12
Total	$fill in the blank 8b4a8c020018018_13	$fill in the blank 8b4a8c020018018_14	$fill in the blank 8b4a8c020018018_15
Supporting calculations:
Units of production	62,000	57,000	51,000
Hours per unit	xfill in the blank 8b4a8c020018018_16	xfill in the blank 8b4a8c020018018_17	xfill in the blank 8b4a8c020018018_18
Total hours of production	fill in the blank 8b4a8c020018018_19	fill in the blank 8b4a8c020018018_20	fill in the blank 8b4a8c020018018_21
Wages per hour	x $fill in the blank 8b4a8c020018018_22	x $fill in the blank 8b4a8c020018018_23	x $fill in the blank 8b4a8c020018018_24
Total wages	$fill in the blank 8b4a8c020018018_25	$fill in the blank 8b4a8c020018018_26	$fill in the blank 8b4a8c020018018_27
Total hours of production	fill in the blank 8b4a8c020018018_28	fill in the blank 8b4a8c020018018_29	fill in the blank 8b4a8c020018018_30
Utility costs per hour	x $fill in the blank 8b4a8c020018018_31	x $fill in the blank 8b4a8c020018018_32	x $fill in the blank 8b4a8c020018018_33
Total utilities	$fill in the blank 8b4a8c020018018_34	$fill in the blank 8b4a8c020018018_35	$fill in the blank 8b4a8c020018018_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 d8011d03105204f_1	$fill in the blank d8011d03105204f_2	$fill in the blank d8011d03105204f_3
Actual cost	fill in the blank d8011d03105204f_4	fill in the blank d8011d03105204f_5	fill in the blank d8011d03105204f_6
Excess of actual cost over budget	$fill in the blank d8011d03105204f_7	$fill in the blank d8011d03105204f_8	$fill in the blank d8011d03105204f_9

What does this comparison suggest?

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