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

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

Hagerstown Company Machining Department Monthly Production Budget
Line Item Description Amount
Wages $891,000
Utilities 53,000
Depreciation 89,000
Total $1,033,000

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

Month Amount Spent Units Produced
May $975,000 109,000
June 929,000 99,000
July 884,000 89,000

The Machining Department supervisor has been very pleased with this performance because actual expenditures for MayJuly have been significantly less than the monthly static budget of 1,033,000. 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:

Line Item Description Amount
Wages per hour $15.00
Utility cost per direct labor hour $0.90
Direct labor hours per unit 0.50
Planned monthly unit production 118,000

a. Prepare a flexible budget for the actual units produced for May, June, and July in the Machining Department. Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.

Hagerstown Company Machining Department Budget For the Three Months Ending July 31
Line Item Description May June July
Units of production 109,000 99,000 89,000

AdvertisingRentResearch and developmentSuppliesWagesWages

$Wages $Wages $Wages

AdvertisingRentResearch and developmentSuppliesUtilitiesUtilities

Utilities Utilities Utilities

AdvertisingDepreciationRentResearch and developmentSuppliesDepreciation

Depreciation Depreciation Depreciation
Total $Total $Total $Total
Supporting calculations:
Units of production 109,000 99,000 89,000
Hours per unit x Hours per unit x Hours per unit x Hours per unit
Total hours of production Total hours of production Total hours of production Total hours of production
Wages per hour x $Wages per hour x $Wages per hour x $Wages per hour
Total wages $Total wages $Total wages $Total wages
Total hours of production Total hours of production Total hours of production Total hours of production
Utility costs per hour x $Utility costs per hour x $Utility costs per hour x $Utility costs per hour
Total utilities $Total utilities $Total utilities $Total utilities

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

Line Item Description May June July
Total flexible budget
Actual cost
Excess of actual cost over budget

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