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 Utilities Depreciation Total 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 $1,600,000 40,000 1,950,000 48,000 2,200,000 52,000 $2,250,000 72,000 36,000 $2,358,000 May June July 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 Utility cost per direct labor hour Direct labor hours per unit Planned monthly unit production $25.00 $0.80 1.5 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 Units of production Machining Department Budget For the Three Months Ending July 31 May June July 40,000 48,000 52,000
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 Utilities Depreciation Total 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 $1,600,000 40,000 1,950,000 48,000 2,200,000 52,000 $2,250,000 72,000 36,000 $2,358,000 May June July 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 Utility cost per direct labor hour Direct labor hours per unit Planned monthly unit production $25.00 $0.80 1.5 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 Units of production Machining Department Budget For the Three Months Ending July 31 May June July 40,000 48,000 52,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 Hagerstown Company agreed to the following monthly static budget for the upcoming year:
Wages
Utilities
$2,250,000
72,000
36,000
$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
$1,600,000
40,000
1,950,000
48,000
2,200,000
52,000
Hagerstown Company
Machining Department
Monthly Production Budget
Depreciation
Total
May
June
July
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
Utility cost per direct labor hour
Direct labor hours per unit
Planned monthly unit production
$25.00
$0.80
1.5
Units of 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
June
48,000
388
May
40,000
July
52,000
Transcribed Image Text:Units of production
Total
Machining Department Budget
For the Three Months Ending July 31
May
June
40,000 48,000
Hagerstown Company
Supporting calculations:
Units of production
Hours per unit
Total hours of production
Wages per hour
Total wages
Total hours of production
Utility costs per hour
Total utilities
Total flexible budget
Actual cost
X $
$
X $
40,000
X $
$
X $
48,000
X $
$
X $
July
52,000
b. Compare the flexible budget with the actual expenditures for the first three months.
June
May
52,000
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.
$
July
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