Static Budget versus Flexible Budget The production supervisor of the Machining Department for Niland Company agreed to the following monthly static budget for the upcoming year: Niland Company Machining Department Monthly Production Budget Wages $385,000 Utilities 20,000 Depreciation 34
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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.
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Static Budget versus Flexible Budget
The production supervisor of the Machining Department for Niland Company agreed to the following monthly static budget for the upcoming year:
| Niland Company Machining Department Monthly Production Budget |
|
| Wages | $385,000 |
| Utilities | 20,000 |
| 34,000 | |
| Total | $439,000 |
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 | |||
| January | $414,000 | 93,000 | ||
| February | 392,000 | 84,000 | ||
| March | 375,000 | 76,000 |
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 $439,000. 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 | $19.00 |
| Utility cost per direct labor hour | $1.00 |
| Direct labor hours per unit | 0.20 |
| Planned monthly unit production | 101,000 |
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. Enter all amounts as positive numbers. If required, use per unit amounts carried out to two decimal places.
| Niland Company-Machining Department | |||
| Flexible Production Budget | |||
| For the Three Months Ending March 31 | |||
| January | February | March | |
| Units of production | fill in the blank bba19df7cfcc076_1 | fill in the blank bba19df7cfcc076_2 | fill in the blank bba19df7cfcc076_3 |
| Wages | $fill in the blank bba19df7cfcc076_4 | $fill in the blank bba19df7cfcc076_5 | $fill in the blank bba19df7cfcc076_6 |
| Utilities | fill in the blank bba19df7cfcc076_7 | fill in the blank bba19df7cfcc076_8 | fill in the blank bba19df7cfcc076_9 |
| Depreciation | fill in the blank bba19df7cfcc076_10 | fill in the blank bba19df7cfcc076_11 | fill in the blank bba19df7cfcc076_12 |
| Total | $fill in the blank bba19df7cfcc076_13 | $fill in the blank bba19df7cfcc076_14 | $fill in the blank bba19df7cfcc076_15 |
b. Compare the flexible budget with the actual expenditures for the first three months.
| January | February | March | |
| Total flexible budget | $fill in the blank 430dc405b056fd7_1 | $fill in the blank 430dc405b056fd7_2 | $fill in the blank 430dc405b056fd7_3 |
| Actual cost | fill in the blank 430dc405b056fd7_4 | fill in the blank 430dc405b056fd7_5 | fill in the blank 430dc405b056fd7_6 |
| Excess of actual cost over budget | $fill in the blank 430dc405b056fd7_7 | $fill in the blank 430dc405b056fd7_8 | $fill in the blank 430dc405b056fd7_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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