Static Budget vs. Flexible Budget The production supervisor of the Machining Dep

Question

Static Budget vs. Flexible Budget

The production supervisor of the Machining Department for Nell 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 2014 in the Machining Department were as follows:

The Machining Department supervisor has been very pleased with this performance, since actual expenditures have been less than the monthly budget. 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:

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. Enter all amounts as positive numbers. If required, use per unit amounts carried out to two decimal places.

Nell Company-Machining Department

Flexible Production Budget

For the Three Months Ending March 31, 2014

January

February

March

Units of production

  

  

  

Wages

$  

$  

$  

Utilities

  

  

  

Depreciation

  

  

  

Total

$  

$  

$  

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

Consider performance and spending.

Learning Objective 2, Learning Objective 4.

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

What does this comparison suggest?

Nell Company
Machining Department
Monthly Production Budget Wages $406,000 Utilities 28,000 Depreciation 46,000 Total $480,000

Explanation / Answer

January February March Units produced 98000 89000 80000 hours required ( 406000 / 106000/19) 0.20 0.20 0.20 Total hours required 19755.32 17941.06 16126.79 Wages per hour 19 19 19 Total wages budget 375351.09 340880.08 306409.06 Utilities per direct labor hour ( 28000/1.3/1060000 0.20 0.20 0.20 Total hours required 19912.92 18084.18 16255.44 Utilities per direct labor hour 1.30 1.30 1.30 Budgeted utilities cost 25886.79 23509.43 21132.08 Depriciation per direct labor cost ( 46000/0.2/106000) 2.17 2.17 2.17 Total hours 212641.5094 193113.2075 173584.9057 Direct labor hours per unit 0.2 0.2 0.2 Depriciation cost 42528.30 38622.64 34716.98 a) Flexible Budget January February March Units of production 98000 89000 80000 Wages 375351.09 340880.08 306409.06 Utilities 25886.79 23509.43 21132.08 Depriciation 42528.30 38622.64 34716.98 Total 443766.19 403012.15 362258.11 b) January February March Total flexible cost 443766.19 403012.15 362258.11 Actual 453000 432000 412000 Excess of actual cost over budget 9233.81 28987.85 49741.89 The machining Department has performed better than originally thought NO The department is spending more than would be expected YES

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