The productions supervisor of the Machining department for Cramer Company agreed to the following monthly static budget for the up coming year:

Cramer Company

Machining Department 

Monthly Production Budget

Wages ………………………………………………… $552,000

Utilities ………………………………………………….. 48,300

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

Total …………………………………………………… $660,300

The actual amount spent and the actual units produced in the first three months of 2012 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 monthly budget. 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. Additonal budget information for the Machining Department is as follows:

Wages per hour …………………………. $16.00

Utilities cost per direct labor hour ………. $1.40

Direct labor hours per unit ………………... 0.30

Planned monthly unit production ……... 115,000

(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?

Transcribed Image Text:

Amount Spent Units Produced January $545,000 90,000 100,000 February March 595,000 649,000 110,000