The production supervisor of the Machining Department for Hagerstown Company agreed to the following monthly static budget for the upcoming year: 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. b. Compare the flexible budget with the actual expenditures for the first three months. What does this comparison suggest?
The production supervisor of the Machining Department for Hagerstown Company agreed to the following monthly static budget for the upcoming year: 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. b. Compare the flexible budget with the actual expenditures for the first three months. What does this comparison suggest?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The production supervisor of the Machining Department for Hagerstown Company agreed to the following monthly static budget for the upcoming year:
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.
b. Compare the flexible budget with the actual expenditures for the first three months. What does this comparison suggest?
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