Static Budgetvs.Flexible Budget

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

The actual amount spent and the actual units produced in the first three months of 2014 in the Machining Department were as follows:

The Machining Department supervisor has been very pleased with this performance, since actual expenditures have been less than the monthlybudget. 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:

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Hint(s)

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.

Gilman Company-Machining Department
Flexible Production Budget
For the Three Months Ending March 31, 2014
January	February	March
Units of production	90,000	100,000	110,000
Wages	$	$	$
Utilities
Depreciation
Total	$	$	$
Supporting calculations:
Units of production	90,000	100,000	110,000
Hours per unit	x	x	x
Total hours of production
Wages per hour	x $	x $	x $
Total wages	$	$	$
Total hours of production
Utility costs per hour	x $	x $	x $
Total utilities	$	$	$

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For each level of production, show wages, utilities, and depreciation.

Consider performance and spending.

Learning Objective 2,Learning Objective 4.

b. 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	$	$	$

What does this comparison suggest?

The Machining Department has performed better than originally thought.	SelectYesNoCorrect 10 of Item 2
The department is spending more than would be expected.	SelectYesNoCorrect 11 of Item 2

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For each level of production, show wages, utilities, and deprecation.

Consider performance and spending.

Learning Objective 2,Learning Objective 4.