Static BudgetversusFlexible 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. $570,000

Utilities. 40,000

Depreciation. 67,000

Total. $677,000

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. $639,000 123,000

February 611,000 112,000

March 584,000 101,000

The Machining Department supervisor has been very pleased with this performance because actual expenditures for January-March have been less than the monthly static budget of $677,000. 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 $17.00

Utility cost per direct labor hour $1.20

Direct labor hours per unit 0.25

Planned monthly unit production 134,000

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

January February March

Total flexible budget $ $ $

Actual cost

Excess of actual cost over budget. $ $ $