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

Rodriguez Company

Machining Department

Monthly Production Budget

Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $384,000

Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $480,000

The actual amount spent and the actual units produced in the first three months of 2016 in the Machining Department were as follows:

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 $480,000. 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....................................................... $16.00
Utility cost per direct labor hour.................................... $1.50
Direct labor hours per unit........................................... 0.20
Planned monthly unit production................................... 120,000
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.
b. Compare the flexible budget with the actual expenditures for the first three months. What does this comparison suggest?

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Amount Spent Units Produced January February March 400,000 440,000 90,000 100,000 10,000 470,000