Question

Static Budget versus Flexible Budget

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

Niland Company Machining Department Monthly Production Budget
Wages	$961,000
Utilities	76,000
Depreciation	125,000
Total	$1,162,000

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

	Amount Spent		Units Produced
January	$1,098,000		126,000
February	1,045,000		114,000
March	1,002,000		103,000

The Machining Department supervisor has been very pleased with this performance because actual expenditures for January–March have been significantly less than the monthly static budget of 1,162,000. 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	$14
Utility cost per direct labor hour	$1.1
Direct labor hours per unit	0.5
Planned monthly unit production	137,000

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. If required, use per unit amounts carried out to two decimal places.

Niland Company
Machining Department Budget
For the Three Months Ending March 31
	January	February	March
Units of production	126,000	114,000	103,000
Wages	$	$	$
Utilities
Depreciation
Total	$	$	$
Supporting calculations:
Units of production	126,000	114,000	103,000
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	$	$	$

Feedback

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	$	$	$

Answer 1

Soltuion:

a.

Niland Company
Machining Department Budget
For the Three Months Ending March 31
	January	February	March
Units of production	1,26,000	1,14,000	1,03,000
Wages	882000	798000	721000
Utilities	69300	62700	56650
Depreciation	125000	125000	125000
Total	1076300	985700	902650
Supporting calculations:
Units of production	1,26,000	1,14,000	1,03,000
Hours per unit	0.5	0.5	0.5
Total hours of production	63000	57000	51500
Wages per hour	14	14	14
Total wages	882000	798000	721000
Total hours of production	63000	57000	51500
Utility costs per hour	1.1	1.1	1.1
Total utilities	69300	62700	56650

b.

	January	February	March
Total flexible budget	1076300	985700	902650
Actual cost	1098000	1045000	1002000
Excess of actual cost over budget	21700	59300	99350