Static Budget versus Flexible Budget The production supervisor of the Machining

Question

Static Budget versus Flexible Budget The production supervisor of the Machining Department for Niland Company agreed to the follovwing static budget for the upcoming year: Niland Company Machining Department Monthly Production Budget Wages Utilities Depreciation Total $623,000 38,000 63,000 $724,000 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 127,000 February649,000115,000 104,000 January $683,000 March 621,000 The Machining Department supervisor has been very pleased with this performance because actual expenditures for January-March have been significantly less than the monthly static budget of 724,000. However, the plant manager believes that the budget should not remain fixed for every or adjust to the volume of work that is produced in the Machining for the Machining Department is as follows: Wages per hour Utility cost per direct labor hour $1.1 Direct labor hours per unit Planned monthly unit production 138,000 a. Prepare Department. Additional budget information $18 0.25 a flexible budget for the actual units produced for January, February, and March in the Machining Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places. Niland Company Machining Department Budget For the Three Months Ending March 31 January February Mardh 104,000 127 Supporting calculations: Units of production 127,000 115,000 104,000

Explanation / Answer

a.

b.

The Machining Department has performed better than originally thought: NO

The department is spending more than would be expected: YES

Niland Company Machining Department Budget For the Three Months Ending March 31 January February March Units of production 127000 115000 104000 Wages 571500 517500 468000 Utilities 34925 31625 28600 Depreciation 63000 63000 63000 Total $ 669425 612125 559600 Supporting calculations: Units of production 127000 115000 104000 Hours per unit 0.25 0.25 0.25 Total hours of production 31750 28750 26000 Wages per hour 18 18 18 Total wages $ 571500 517500 468000 Total hours of production 31750 28750 26000 Utility costs per hour 1.1 1.1 1.1 Total utilities $ 34925 31625 28600

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