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.
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 | $1,064,000 |
| Utilities | 56,000 |
| 92,000 | |
| Total | $1,212,000 |
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 | $1,142,000 | 93,000 | ||
| June | 1,081,000 | 84,000 | ||
| July | 1,034,000 | 76,000 |
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 1,212,000. 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 | $21.00 |
| Utility cost per direct labor hour | $1.10 |
| Direct labor hours per unit | 0.50 |
| Planned monthly unit production | 101,000 |
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.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
