Static Budget vs. Flexible Budget

The production supervisor of the Machining Department for Gilman Company agreed to the following monthly static budget for the upcoming year:

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.

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

The production supervisor of the Machining Department for Gilman Company agreed to the following monthly static budget for the upcoming year: Gilman Company Machining Department Monthly Production Budget Wages $450,000 Utilities 54,000 60,000 Depreciation Tota $564,000 The actual amount spent and the actual units produced in the first three months of 2014 in the Machining Department were as follows: Amount spent Units Produced 90,000 $450,000 January February 492,000 100,000 540,000 March 110,000 The Machining Department supervisor has been very pleased with this performance, since actual expenditures have been less than the monthly budget. 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 nformation for the Machining Department is as follows: $15.00 Wages per hour Utility cost per direct labor hour $1.80 Direct labor hours per unit 120,000 Planned monthly unit production