The production supervisor of Moldings Department for Towers Company agreed to the following monthly static budget for the upcoming year (15 Marks)

Towers Company

Molding Department

Monthly Production Budget

Sh.

Wages 648,000

Utilities 108,000

Depreciation 70,000

Total 826,000

The actual amount spent and the actual units produced in the first three months in the Molding Department were as follows

Amount spent units produced

January 775,000 55,000

February 720, 000 50,000

March 665,000 45,000

The Molding department supervisor has been very pleased with his performance since the actual expenditure has been less than the monthly budget. However 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 Molding Department.

Additional budget information for the Molding Department is as follows

Wages per hour 18/=

Utility cost per direct labor hour 3/=

Direct labour hours per unit 0.6

Planned Production units 60,000

Required

a) Prepare a flexible budget for the actual units produced for January, February, and March in the Molding Department

b) Compare the Flexible Budget with the actual expenditure for the first three months.

c) What does the comparison in (b) above suggest?