Question

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	$2,250,000
Utilities	72,000
Depreciation	36,000
Total	$2,358,000

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	$1,600,000		40,000
June	1,950,000		48,000
July	2,200,000		52,000

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 $2,358,000. 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	$25.00
Utility cost per direct labor hour	$0.80
Direct labor hours per unit	1.5
Planned monthly unit production	60,000

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	40,000	48,000	52,000
Wages	$fill in the blank 146a7306700bf94_2	$fill in the blank 146a7306700bf94_3	$fill in the blank 146a7306700bf94_4
Utilities	fill in the blank 146a7306700bf94_6	fill in the blank 146a7306700bf94_7	fill in the blank 146a7306700bf94_8
Depreciation	fill in the blank 146a7306700bf94_10	fill in the blank 146a7306700bf94_11	fill in the blank 146a7306700bf94_12
Total	$fill in the blank 146a7306700bf94_13	$fill in the blank 146a7306700bf94_14	$fill in the blank 146a7306700bf94_15
Supporting calculations:
Units of production	40,000	48,000	52,000
Hours per unit	x fill in the blank 146a7306700bf94_16	x fill in the blank 146a7306700bf94_17	x fill in the blank 146a7306700bf94_18
Total hours of production	fill in the blank 146a7306700bf94_19	fill in the blank 146a7306700bf94_20	fill in the blank 146a7306700bf94_21
Wages per hour	x $fill in the blank 146a7306700bf94_22	x $fill in the blank 146a7306700bf94_23	x $fill in the blank 146a7306700bf94_24
Total wages	$fill in the blank 146a7306700bf94_25	$fill in the blank 146a7306700bf94_26	$fill in the blank 146a7306700bf94_27
Total hours of production	fill in the blank 146a7306700bf94_28	fill in the blank 146a7306700bf94_29	fill in the blank 146a7306700bf94_30
Utility costs per hour	x $fill in the blank 146a7306700bf94_31	x $fill in the blank 146a7306700bf94_32	x $fill in the blank 146a7306700bf94_33
Total utilities	$fill in the blank 146a7306700bf94_34	$fill in the blank 146a7306700bf94_35	$fill in the blank 146a7306700bf94_36

Feedback

For each level of production, show wages, utilities, and depreciation.

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

	May		June		July
Total flexible budget	$fill in the blank ec35def96fa9f89_1		$fill in the blank ec35def96fa9f89_2		$fill in the blank ec35def96fa9f89_3
Actual cost	fill in the blank ec35def96fa9f89_4		fill in the blank ec35def96fa9f89_5		fill in the blank ec35def96fa9f89_6
Excess of actual cost over budget	$fill in the blank ec35def96fa9f89_7		$fill in the blank ec35def96fa9f89_8		$fill in the blank ec35def96fa9f89_9

Answer 1

SOLUTION:

A)FLEXIBLE BUDGET

HAGERSTOWN COMPANY MACHINING DEPARTMENT BUDGET
PARTICULARS	MAY	JUNE	JULY
UNITS OF PRODUCTION	40000	48000	52000
WAGES	1500000	1800000	1950000
UTILITIES	60000	72000	78000
DEPRECIATION	36000	36000	36000
TOTAL	$1596000	$1908000	$2064000
SUPPORTING CALCULATIONS:
A)UNITS OF PRODUCTION	40000	48000	52000
B)HOURS PER UNIT	*1.5	*1.5	*1.5
C)TOTAL HOURS OF PRODUCTION(A*B)	60000	72000	78000
D)WAGES PER HOUR	*25	*25	*25
E)TOTAL WAGES(A*D)	1500000	1800000	1950000
F)TOTAL HOURS OF PRODUCTION	60000	72000	78000
G)UTILITY COSTS PER HOUR	0.8	0.8	0.8
H)TOTAL UTILITIES(F*G)	48000	57600	62400

B)COMPARISON FOR THREE MONTHS

PARTICULARS	MAY	JUNE	JULY
TOTAL FLEXIBLE BUDGET	$1596000	$1908000	$2064000
ACTUAL COST	1600000	1950000	2200000
EXCESS OF ACTUAL COST OVER BUDGET	(4000)	(42000)	(136000)