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: Line Item Description Amount Wages $1,284,000 Utilities 61,000 Depreciation 102,000 Total $1,447,000 The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows: Month Amount Spent Units Produced May $1,363,000 124,000 June 1,300,000 113,000 July 1,240,000 102,000 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 1,447,000. 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: Line Item Description Amount Wages per hour $19.00 Utility cost per direct labor hour $0.90 Direct labor hours per unit 0.50 Planned monthly unit production 136,000 Question Content Area 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 CompanyMachining Department BudgetFor the Three Months Ending July 31 Line Item Description May June July Units of production 124,000 113,000 102,000 $- Select - $- Select - $- Select - - Select - - Select - - Select - - Select - - Select - - Select - Total $Total $Total $Total Supporting calculations: Units of production 124,000 113,000 102,000 Hours per unit x Hours per unit x Hours per unit x Hours per unit Total hours of production Total hours of production Total hours of production Total hours of production Wages per hour x $Wages per hour x $Wages per hour x $Wages per hour Total wages $Total wages $Total wages $Total wages Total hours of production Total hours of production Total hours of production Total hours of production Utility costs per hour x $Utility costs per hour x $Utility costs per hour x $Utility costs per hour Total utilities $Total utilities $Total utilities $Total utilities Question Content Area b. Compare the flexible budget with the actual expenditures for the first three months. Line Item Description May June July Total flexible budget fill in the blank 1 of 9$ fill in the blank 2 of 9$ fill in the blank 3 of 9$ Actual cost fill in the blank 4 of 9 fill in the blank 5 of 9 fill in the blank 6 of 9 Excess of actual cost over budget fill in the blank 7 of 9$ fill in the blank 8 of 9$ fill in the blank 9 of 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: Line Item Description Amount Wages $1,284,000 Utilities 61,000 Depreciation 102,000 Total $1,447,000 The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows: Month Amount Spent Units Produced May $1,363,000 124,000 June 1,300,000 113,000 July 1,240,000 102,000 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 1,447,000. 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: Line Item Description Amount Wages per hour $19.00 Utility cost per direct labor hour $0.90 Direct labor hours per unit 0.50 Planned monthly unit production 136,000 Question Content Area 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 CompanyMachining Department BudgetFor the Three Months Ending July 31 Line Item Description May June July Units of production 124,000 113,000 102,000 $- Select - $- Select - $- Select - - Select - - Select - - Select - - Select - - Select - - Select - Total $Total $Total $Total Supporting calculations: Units of production 124,000 113,000 102,000 Hours per unit x Hours per unit x Hours per unit x Hours per unit Total hours of production Total hours of production Total hours of production Total hours of production Wages per hour x $Wages per hour x $Wages per hour x $Wages per hour Total wages $Total wages $Total wages $Total wages Total hours of production Total hours of production Total hours of production Total hours of production Utility costs per hour x $Utility costs per hour x $Utility costs per hour x $Utility costs per hour Total utilities $Total utilities $Total utilities $Total utilities Question Content Area b. Compare the flexible budget with the actual expenditures for the first three months. Line Item Description May June July Total flexible budget fill in the blank 1 of 9$ fill in the blank 2 of 9$ fill in the blank 3 of 9$ Actual cost fill in the blank 4 of 9 fill in the blank 5 of 9 fill in the blank 6 of 9 Excess of actual cost over budget fill in the blank 7 of 9$ fill in the blank 8 of 9$ fill in the blank 9 of 9$ What does this comparison suggest? The Machining Department has performed better than originally thought. The department is spending more than would be expected.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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.
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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:
| Line Item Description | Amount |
|---|---|
| Wages | $1,284,000 |
| Utilities | 61,000 |
| 102,000 | |
| Total | $1,447,000 |
The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:
| Month | Amount Spent | Units Produced |
|---|---|---|
| May | $1,363,000 | 124,000 |
| June | 1,300,000 | 113,000 |
| July | 1,240,000 | 102,000 |
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 1,447,000. 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:
| Line Item Description | Amount |
|---|---|
| Wages per hour | $19.00 |
| Utility cost per direct labor hour | $0.90 |
| Direct labor hours per unit | 0.50 |
| Planned monthly unit production | 136,000 |
Question Content Area
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.
| Line Item Description | May | June | July |
|---|---|---|---|
| Units of production | 124,000 | 113,000 | 102,000 |
|
|
$- Select - | $- Select - | $- Select - |
|
|
- Select - | - Select - | - Select - |
|
|
- Select - | - Select - | - Select - |
| Total | $Total | $Total | $Total |
| Supporting calculations: | |||
| Units of production | 124,000 | 113,000 | 102,000 |
| Hours per unit | x Hours per unit | x Hours per unit | x Hours per unit |
| Total hours of production | Total hours of production | Total hours of production | Total hours of production |
| Wages per hour | x $Wages per hour | x $Wages per hour | x $Wages per hour |
| Total wages | $Total wages | $Total wages | $Total wages |
| Total hours of production | Total hours of production | Total hours of production | Total hours of production |
| Utility costs per hour | x $Utility costs per hour | x $Utility costs per hour | x $Utility costs per hour |
| Total utilities | $Total utilities | $Total utilities | $Total utilities |
Question Content Area
b. Compare the flexible budget with the actual expenditures for the first three months.
| Line Item Description | May | June | July |
|---|---|---|---|
| Total flexible budget | fill in the blank 1 of 9$ | fill in the blank 2 of 9$ | fill in the blank 3 of 9$ |
| Actual cost | fill in the blank 4 of 9 | fill in the blank 5 of 9 | fill in the blank 6 of 9 |
| Excess of actual cost over budget | fill in the blank 7 of 9$ | fill in the blank 8 of 9$ | fill in the blank 9 of 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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