Static Budget vs. Flexible Budget The production supervisor of the Machining Dep
ID: 2565747 • Letter: S
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 2016 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.
Feedback
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 CompanyMachining Department
Monthly Production Budget Wages $702,000 Utilities 65,000 Depreciation 108,000 Total $875,000
Explanation / Answer
Answer:
1
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
Nell Company-Machining Department
Flexible Production Budget
For the Three Months Ending March 31, 2016
January
February
March
Units of production
92000
83000
75000
Wages (Working note-1)
644000
581000
525000
Utilities (Working note-2)
59800
53950
48750
Depreciation
108,000
108,000
108,000
Total Flexible Production Budget
811,800
742,950
681,750
Working notes for the answer
Working note:1
Wage calculation
January
February
March
Units of production
92000
83000
75000
Multiplied by: Hours per unit
x 0.5
x 0.5
x 0.5
Total Hours for the production
46000
41500
37500
Multiplied by: wage rate Per hour
x 14
x 14
x 14
Total Wages
644000
581000
525000
Working note:2
Utility calculation
January
February
March
Total Hours for the production
46000
41500
37500
Multiplied by: Utility rate Per hour
x 1.3
x 1.3
x 1.3
Total Utilities
59800
53950
48750
___________________________________________________________
2
January
February
March
Total flexible budget
811,800
742,950
681,750
Actual cost
828000
788000
757000
Excess of actual cost over budget
16,200
45,050
75,250
What does this comparison suggest?
The Machining Department has performed better than originally thought.
No
The department is spending more than would be expected.
Yes
Nell Company-Machining Department
Flexible Production Budget
For the Three Months Ending March 31, 2016
January
February
March
Units of production
92000
83000
75000
Wages (Working note-1)
644000
581000
525000
Utilities (Working note-2)
59800
53950
48750
Depreciation
108,000
108,000
108,000
Total Flexible Production Budget
811,800
742,950
681,750
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