The production supervisor of the Machining Department for Niland Company agreed to the following monthly static budget for the upcoming year: Niland CompanyMachining DepartmentMonthly Production Budget Wages $447,000 Utilities 20,000 Depreciation 33,000 Total $500,000 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 $471,000   82,000   February 445,000   74,000   March 425,000   67,000   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 $500,000. 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 $20.00 Utility cost per direct labor hour $0.90 Direct labor hours per unit 0.25 Planned monthly unit production 89,000 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       Wages $ $ $ Utilities       Depreciation       Total $ $ $ b.  Compare the flexible budget with the actual expenditures for the first three months.   January February March Total flexible budget $ $ $ Actual cost       Excess of actual cost over budget $ $ $ 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
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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 $447,000
Utilities 20,000
Depreciation 33,000
Total $500,000

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 $471,000   82,000  
February 445,000   74,000  
March 425,000   67,000  

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 $500,000. 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 $20.00
Utility cost per direct labor hour $0.90
Direct labor hours per unit 0.25
Planned monthly unit production 89,000

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      
Wages $ $ $
Utilities      
Depreciation      
Total $ $ $

b.  Compare the flexible budget with the actual expenditures for the first three months.

  January February March
Total flexible budget $ $ $
Actual cost      
Excess of actual cost over budget $ $ $

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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