The production supervisor of the Machining Department for Rodriguez Company agre

Question

The production supervisor of the Machining Department for Rodriguez 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 of 2016 in the Machining Department were as follows:

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 $480,000. 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:

Part A: Flexible Budget

a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places. Enter all amounts as positive numbers.

Feedback

For each level of production, show wages, utilities, and depreciation.

Consider performance and spending.

Learning Objective 2, Learning Objective 4.

Part B: Decision Analysis

b. Compare the flexible budget with the actual expenditures for the first three months. Enter all amounts as positive numbers.

What does this comparison suggest?

Rodriguez Company
Machining Department
Monthly Production Budget Wages $384,000 Utilities 36,000 Depreciation 60,000 Total $480,000

Explanation / Answer

The comparison suggest that The Machining Department has performed better than originally thought.

January February March Units of production       90,000.00           100,000.00     110,000.00 Wages    288,000.00           320,000.00     352,000.00 Utilities       27,000.00             30,000.00       33,000.00 Depreciation       60,000.00             60,000.00       60,000.00 Total    465,000.00           510,000.00     555,000.00 Supporting calculations: Units of production       90,000.00           100,000.00     110,000.00 Hours per unit                 0.20                        0.20                  0.20 Total hours of production       18,000.00             20,000.00       22,000.00 Wages per hour               16.00                      16.00               16.00 Total wages    288,000.00           320,000.00     352,000.00 Total hours of production       18,000.00             20,000.00       22,000.00 Utility costs per hour                 1.50                        1.50                  1.50 Total utilities       27,000.00             30,000.00       33,000.00

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