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 $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 62d096fc8f80fa8_2 $fill in the blank 62d096fc8f80fa8_3 $fill in the blank 62d096fc8f80fa8_4 Utilities fill in the blank 62d096fc8f80fa8_6 fill in the blank 62d096fc8f80fa8_7 fill in the blank 62d096fc8f80fa8_8 Depreciation fill in the blank 62d096fc8f80fa8_10 fill in the blank 62d096fc8f80fa8_11 fill in the blank 62d096fc8f80fa8_12 Total $fill in the blank 62d096fc8f80fa8_13 $fill in the blank 62d096fc8f80fa8_14 $fill in the blank 62d096fc8f80fa8_15 Supporting calculations: Units of production 40,000 48,000 52,000 Hours per unit x fill in the blank 62d096fc8f80fa8_16 x fill in the blank 62d096fc8f80fa8_17 x fill in the blank 62d096fc8f80fa8_18 Total hours of production fill in the blank 62d096fc8f80fa8_19 fill in the blank 62d096fc8f80fa8_20 fill in the blank 62d096fc8f80fa8_21 Wages per hour x $fill in the blank 62d096fc8f80fa8_22 x $fill in the blank 62d096fc8f80fa8_23 x $fill in the blank 62d096fc8f80fa8_24 Total wages $fill in the blank 62d096fc8f80fa8_25 $fill in the blank 62d096fc8f80fa8_26 $fill in the blank 62d096fc8f80fa8_27 Total hours of production fill in the blank 62d096fc8f80fa8_28 fill in the blank 62d096fc8f80fa8_29 fill in the blank 62d096fc8f80fa8_30 Utility costs per hour x $fill in the blank 62d096fc8f80fa8_31 x $fill in the blank 62d096fc8f80fa8_32 x $fill in the blank 62d096fc8f80fa8_33 Total utilities $fill in the blank 62d096fc8f80fa8_34 $fill in the blank 62d096fc8f80fa8_35 $fill in the blank 62d096fc8f80fa8_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 090292f78079fe5_1 $fill in the blank 090292f78079fe5_2 $fill in the blank 090292f78079fe5_3 Actual cost fill in the blank 090292f78079fe5_4 fill in the blank 090292f78079fe5_5 fill in the blank 090292f78079fe5_6 Excess of actual cost over budget $fill in the blank 090292f78079fe5_7 $fill in the blank 090292f78079fe5_8 $fill in the blank 090292f78079fe5_9 What does this comparison suggest? The Machining Department has performed better than originally thought. The department is spending more than would be expected.

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 $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 62d096fc8f80fa8_2 $fill in the blank 62d096fc8f80fa8_3 $fill in the blank 62d096fc8f80fa8_4 Utilities fill in the blank 62d096fc8f80fa8_6 fill in the blank 62d096fc8f80fa8_7 fill in the blank 62d096fc8f80fa8_8 Depreciation fill in the blank 62d096fc8f80fa8_10 fill in the blank 62d096fc8f80fa8_11 fill in the blank 62d096fc8f80fa8_12 Total $fill in the blank 62d096fc8f80fa8_13 $fill in the blank 62d096fc8f80fa8_14 $fill in the blank 62d096fc8f80fa8_15 Supporting calculations: Units of production 40,000 48,000 52,000 Hours per unit x fill in the blank 62d096fc8f80fa8_16 x fill in the blank 62d096fc8f80fa8_17 x fill in the blank 62d096fc8f80fa8_18 Total hours of production fill in the blank 62d096fc8f80fa8_19 fill in the blank 62d096fc8f80fa8_20 fill in the blank 62d096fc8f80fa8_21 Wages per hour x $fill in the blank 62d096fc8f80fa8_22 x $fill in the blank 62d096fc8f80fa8_23 x $fill in the blank 62d096fc8f80fa8_24 Total wages $fill in the blank 62d096fc8f80fa8_25 $fill in the blank 62d096fc8f80fa8_26 $fill in the blank 62d096fc8f80fa8_27 Total hours of production fill in the blank 62d096fc8f80fa8_28 fill in the blank 62d096fc8f80fa8_29 fill in the blank 62d096fc8f80fa8_30 Utility costs per hour x $fill in the blank 62d096fc8f80fa8_31 x $fill in the blank 62d096fc8f80fa8_32 x $fill in the blank 62d096fc8f80fa8_33 Total utilities $fill in the blank 62d096fc8f80fa8_34 $fill in the blank 62d096fc8f80fa8_35 $fill in the blank 62d096fc8f80fa8_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 090292f78079fe5_1 $fill in the blank 090292f78079fe5_2 $fill in the blank 090292f78079fe5_3 Actual cost fill in the blank 090292f78079fe5_4 fill in the blank 090292f78079fe5_5 fill in the blank 090292f78079fe5_6 Excess of actual cost over budget $fill in the blank 090292f78079fe5_7 $fill in the blank 090292f78079fe5_8 $fill in the blank 090292f78079fe5_9 What does this comparison suggest? The Machining Department has performed better than originally thought. The department is spending more than would be expected.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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	$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 62d096fc8f80fa8_2	$fill in the blank 62d096fc8f80fa8_3	$fill in the blank 62d096fc8f80fa8_4
Utilities	fill in the blank 62d096fc8f80fa8_6	fill in the blank 62d096fc8f80fa8_7	fill in the blank 62d096fc8f80fa8_8
Depreciation	fill in the blank 62d096fc8f80fa8_10	fill in the blank 62d096fc8f80fa8_11	fill in the blank 62d096fc8f80fa8_12
Total	$fill in the blank 62d096fc8f80fa8_13	$fill in the blank 62d096fc8f80fa8_14	$fill in the blank 62d096fc8f80fa8_15
Supporting calculations:
Units of production	40,000	48,000	52,000
Hours per unit	x fill in the blank 62d096fc8f80fa8_16	x fill in the blank 62d096fc8f80fa8_17	x fill in the blank 62d096fc8f80fa8_18
Total hours of production	fill in the blank 62d096fc8f80fa8_19	fill in the blank 62d096fc8f80fa8_20	fill in the blank 62d096fc8f80fa8_21
Wages per hour	x $fill in the blank 62d096fc8f80fa8_22	x $fill in the blank 62d096fc8f80fa8_23	x $fill in the blank 62d096fc8f80fa8_24
Total wages	$fill in the blank 62d096fc8f80fa8_25	$fill in the blank 62d096fc8f80fa8_26	$fill in the blank 62d096fc8f80fa8_27
Total hours of production	fill in the blank 62d096fc8f80fa8_28	fill in the blank 62d096fc8f80fa8_29	fill in the blank 62d096fc8f80fa8_30
Utility costs per hour	x $fill in the blank 62d096fc8f80fa8_31	x $fill in the blank 62d096fc8f80fa8_32	x $fill in the blank 62d096fc8f80fa8_33
Total utilities	$fill in the blank 62d096fc8f80fa8_34	$fill in the blank 62d096fc8f80fa8_35	$fill in the blank 62d096fc8f80fa8_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 090292f78079fe5_1	$fill in the blank 090292f78079fe5_2	$fill in the blank 090292f78079fe5_3
Actual cost	fill in the blank 090292f78079fe5_4	fill in the blank 090292f78079fe5_5	fill in the blank 090292f78079fe5_6
Excess of actual cost over budget	$fill in the blank 090292f78079fe5_7	$fill in the blank 090292f78079fe5_8	$fill in the blank 090292f78079fe5_9

What does this comparison suggest?

The Machining Department has performed better than originally thought.
The department is spending more than would be expected.

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