Static Budget versus Flexible Budget
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 |
|
Wages | $283,000 |
Utilities | 17,000 |
Depreciation | 28,000 |
Total | $328,000 |
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 | |||
May | $309,000 | 61,000 | ||
June | 297,000 | 56,000 | ||
July | 281,000 | 50,000 |
The Machining Department supervisor has been very pleased with this performance because actual expenditures for May–July have been significantly less than the monthly static budget of 328,000. 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 | $17.00 |
Utility cost per direct labor hour | $1.00 |
Direct labor hours per unit | 0.25 |
Planned monthly unit production | 67,000 |
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 | |||
May | June | July | |
Units of production | 61,000 | 56,000 | 50,000 |
$fill in the blank f36438f43018032_2 | $fill in the blank f36438f43018032_3 | $fill in the blank f36438f43018032_4 | |
fill in the blank f36438f43018032_6 | fill in the blank f36438f43018032_7 | fill in the blank f36438f43018032_8 | |
fill in the blank f36438f43018032_10 | fill in the blank f36438f43018032_11 | fill in the blank f36438f43018032_12 | |
Total | $fill in the blank f36438f43018032_13 | $fill in the blank f36438f43018032_14 | $fill in the blank f36438f43018032_15 |
Supporting calculations: | |||
Units of production | 61,000 | 56,000 | 50,000 |
Hours per unit | x fill in the blank f36438f43018032_16 | x fill in the blank f36438f43018032_17 | x fill in the blank f36438f43018032_18 |
Total hours of production | fill in the blank f36438f43018032_19 | fill in the blank f36438f43018032_20 | fill in the blank f36438f43018032_21 |
Wages per hour | x $fill in the blank f36438f43018032_22 | x $fill in the blank f36438f43018032_23 | x $fill in the blank f36438f43018032_24 |
Total wages | $fill in the blank f36438f43018032_25 | $fill in the blank f36438f43018032_26 | $fill in the blank f36438f43018032_27 |
Total hours of production | fill in the blank f36438f43018032_28 | fill in the blank f36438f43018032_29 | fill in the blank f36438f43018032_30 |
Utility costs per hour | x $fill in the blank f36438f43018032_31 | x $fill in the blank f36438f43018032_32 | x $fill in the blank f36438f43018032_33 |
Total utilities | $fill in the blank f36438f43018032_34 | $fill in the blank f36438f43018032_35 | $fill in the blank f36438f43018032_36 |
b. Compare the flexible budget with the actual expenditures for the first three months.
May | June | July | |
Total flexible budget | $fill in the blank 5dfd40096046037_1 | $fill in the blank 5dfd40096046037_2 | $fill in the blank 5dfd40096046037_3 |
Actual cost | fill in the blank 5dfd40096046037_4 | fill in the blank 5dfd40096046037_5 | fill in the blank 5dfd40096046037_6 |
Excess of actual cost over budget | $fill in the blank 5dfd40096046037_7 | $fill in the blank 5dfd40096046037_8 | $fill in the blank 5dfd40096046037_9 |
What does this comparison suggest?
The Machining Department has performed better than originally thought. | |
The department is spending more than would be expected. |
May | June | July | |
Units of Production | 61000 | 56000 | 50000 |
Wages | $ 259,250 | $ 238,000 | $ 212,500 |
Utilities | $ 15,250 | $ 14,000 | $ 12,500 |
Depreciation | $ 28,000 | $ 28,000 | $ 28,000 |
Total | $ 302,500 | $ 280,000 | $ 253,000 |
Supporting Calculations | |||
Units of Production | 61000 | 56000 | 50000 |
Hours per unit | 0.25 | 0.25 | 0.25 |
Total Hours of Production | 15250 | 14000 | 12500 |
Wages per hour | $ 17.00 | $ 17.00 | $ 17.00 |
Total Wages | $ 259,250 | $ 238,000 | $ 212,500 |
Total Hours of Production | 15250 | 14000 | 12500 |
Utility Costs per hour | $ 1.00 | $ 1.00 | $ 1.00 |
Total Utilities | $ 15,250 | $ 14,000 | $ 12,500 |
May | June | July | |
Total Flexible Budget | $ 302,500 | $ 280,000 | $ 253,000 |
Actual Cost | $ 309,000 | $ 297,000 | $ 281,000 |
Excess of actual cost over budget | $ 6,500 | $ 17,000 | $ 28,000 |
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