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 $382,000 Utilities 35,000 Depreciation 59,000 Total $476,000 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 $450,000 100,000 June 431,000 91,000 July 414,000 82,000 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 476,000. 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 $14.00 Utility cost per direct labor hour $1.30 Direct labor hours per unit 0.25 Planned monthly unit production 109,000 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. b. Compare the flexible budget with the actual expenditures for the first three months.
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.
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 | $382,000 |
| Utilities | 35,000 |
| 59,000 | |
| Total | $476,000 |
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 | $450,000 | 100,000 | ||
| June | 431,000 | 91,000 | ||
| July | 414,000 | 82,000 |
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 476,000. 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 | $14.00 |
| Utility cost per direct labor hour | $1.30 |
| Direct labor hours per unit | 0.25 |
| Planned monthly unit production | 109,000 |
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.
b. Compare the flexible budget with the actual expenditures for the first three months.
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