Static Budget versus Flexible Budget The production supervisor of the Machining Department for Celtic Company agreed to the following monthly static budget for the upcoming year: Celtic Company Machining Department Monthly Production Budget Wages Utilities $536,000 40,000 67,000 $643,000 The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows: Amount Spent Depreciation Total Units Produced January February March $608,000 123,000 582,000 112,000 556,000 101,000 The Machining Department supervisor has been very pleased with this performance because actual expenditures for January-March have been less than the monthly static budget of $643,000. 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 Utility cost per direct labor hour Direct labor hours per unit Planned monthly unit production $16.00 $1.20 0.25 134,000 a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume that depreciation is a fixed cost. If unit amounts carried out to hun decimal nlarae
Static Budget versus Flexible Budget The production supervisor of the Machining Department for Celtic Company agreed to the following monthly static budget for the upcoming year: Celtic Company Machining Department Monthly Production Budget Wages Utilities $536,000 40,000 67,000 $643,000 The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows: Amount Spent Depreciation Total Units Produced January February March $608,000 123,000 582,000 112,000 556,000 101,000 The Machining Department supervisor has been very pleased with this performance because actual expenditures for January-March have been less than the monthly static budget of $643,000. 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 Utility cost per direct labor hour Direct labor hours per unit Planned monthly unit production $16.00 $1.20 0.25 134,000 a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume that depreciation is a fixed cost. If unit amounts carried out to hun decimal nlarae
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Transcribed Image Text:Static Budget versus Flexible Budget
The production supervisor of the Machining Department for Celtic Company agreed to the following monthly static budget for the upcoming year:
Celtic Company
Machining Department
Monthly Production Budget
Wages
Utilities
$536,000
40,000
67,000
$643,000
The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:
Amount
Spent
$608,000
582,000
556,000
Depreciation
Total
January
February
March
Units
Produced
123,000
112,000
101,000
The Machining Department supervisor has been very pleased with this performance because actual expenditures for January-March have been less than the monthly
static budget of $643,000. 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
Utility cost per direct labor hour
Direct labor hours per unit
Planned monthly unit production
$16.00
$1.20
0.25
134,000
a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume that depreciation is a fixed cost. If
renuired e ner unit amounts carried out to hun decimal nlaces
Transcribed Image Text:Planned monthly unit production 134,000
a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume that depreciation is a fixed cost. If
required, use per unit amounts carried out to two decimal places.
Celtic Company-Machining Department
Flexible Production Budget
For the Three Months Ending March 31
January
123,000 ✓
Units of production
Wages
Ubilities
Depreciation
Total
492,000 X
36,900 X
X
X
Actual cost
February
112,000 ✓
448,000 X
33,600 X
X
X
March
101,000 ✓
404,000 X
30,300 X
X
b. Compare the flexible budget with the actual expenditures for the first three months.
January
February
X
X
X
Total flexible budget
Excess of actual cost over budget
What does this comparison suggest?
The Machining Department has performed better than originally
thought.
The department is spending more than would be expected.
X
X
X
X
March
X
X
X
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education