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 $Supplies $Supplies $Supplies - Select - - Select - - Select - - Select - - Select - - Select - Total $fill in the blank 157c7b022fa2062_13 $fill in the blank 157c7b022fa2062_14 $fill in the blank 157c7b022fa2062_15 Supporting calculations: Units of production 40,000 48,000 52,000 Hours per unit x fill in the blank 157c7b022fa2062_16 x fill in the blank 157c7b022fa2062_17 x fill in the blank 157c7b022fa2062_18 Total hours of production fill in the blank 157c7b022fa2062_19 fill in the blank 157c7b022fa2062_20 fill in the blank 157c7b022fa2062_21 Wages per hour x $fill in the blank 157c7b022fa2062_22 x $fill in the blank 157c7b022fa2062_23 x $fill in the blank 157c7b022fa2062_24 Total wages $fill in the blank 157c7b022fa2062_25 $fill in the blank 157c7b022fa2062_26 $fill in the blank 157c7b022fa2062_27 Total hours of production fill in the blank 157c7b022fa2062_28 fill in the blank 157c7b022fa2062_29 fill in the blank 157c7b022fa2062_30 Utility costs per hour x $fill in the blank 157c7b022fa2062_31 x $fill in the blank 157c7b022fa2062_32 x $fill in the blank 157c7b022fa2062_33 Total utilities $fill in the blank 157c7b022fa2062_34 $fill in the blank 157c7b022fa2062_35 $fill in the blank 157c7b022fa2062_36 b. Compare the flexible budget with the actual expenditures for the first three months.
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 |
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.
Machining Department Budget
For the Three Months Ending July 31
May | June | July | |
Units of production | 40,000 | 48,000 | 52,000 |
|
$Supplies | $Supplies | $Supplies |
|
- Select - | - Select - | - Select - |
|
- Select - | - Select - | - Select - |
Total | $fill in the blank 157c7b022fa2062_13 | $fill in the blank 157c7b022fa2062_14 | $fill in the blank 157c7b022fa2062_15 |
Supporting calculations: | |||
Units of production | 40,000 | 48,000 | 52,000 |
Hours per unit | x fill in the blank 157c7b022fa2062_16 | x fill in the blank 157c7b022fa2062_17 | x fill in the blank 157c7b022fa2062_18 |
Total hours of production | fill in the blank 157c7b022fa2062_19 | fill in the blank 157c7b022fa2062_20 | fill in the blank 157c7b022fa2062_21 |
Wages per hour | x $fill in the blank 157c7b022fa2062_22 | x $fill in the blank 157c7b022fa2062_23 | x $fill in the blank 157c7b022fa2062_24 |
Total wages | $fill in the blank 157c7b022fa2062_25 | $fill in the blank 157c7b022fa2062_26 | $fill in the blank 157c7b022fa2062_27 |
Total hours of production | fill in the blank 157c7b022fa2062_28 | fill in the blank 157c7b022fa2062_29 | fill in the blank 157c7b022fa2062_30 |
Utility costs per hour | x $fill in the blank 157c7b022fa2062_31 | x $fill in the blank 157c7b022fa2062_32 | x $fill in the blank 157c7b022fa2062_33 |
Total utilities | $fill in the blank 157c7b022fa2062_34 | $fill in the blank 157c7b022fa2062_35 | $fill in the blank 157c7b022fa2062_36 |
b. Compare the flexible budget with the actual expenditures for the first three months.
May | June | July | |||
Total flexible budget | $fill in the blank dc364dff3feffd0_1 | $fill in the blank dc364dff3feffd0_2 | $fill in the blank dc364dff3feffd0_3 | ||
Actual cost | fill in the blank dc364dff3feffd0_4 | fill in the blank dc364dff3feffd0_5 | fill in the blank dc364dff3feffd0_6 | ||
Excess of actual cost over budget | $fill in the blank dc364dff3feffd0_7 | $fill in the blank dc364dff3feffd0_8 | $fill in the blank dc364dff3feffd0_9 |
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