Static budget versus flexible budget
The production supervisor of the Machining Department for Hagerstown Company agreed to the following monthly static budget for the upcoming year:
Hagerstown Company
Machining Department
Monthly Production Budget
Line Item Description Amount
Wages $
Utilities
Depreciation
Total $
The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:
Month Amount Spent Units Produced
May $
June
July
The Machining Department supervisor has been very pleased with this performance because actual expenditures for MayJuly have been significantly less than the monthly static budget of 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:
Line Item Description Amount
Wages per hour $
Utility cost per direct labor hour $
Direct labor hours per unit
Planned monthly unit production
Question Content Area
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. If required, use per unit amounts carried out to two decimal places.
Hagerstown Company
Machining Department Budget
For the Three Months Ending July
Line Item Description May June July
Units of production
$Wages $Wages $Wages
Utilities Utilities Utilities
Depreciation Depreciation Depreciation
Total $Total $Total $Total
Supporting calculations:
Units of production
Hours per unit x Hours per unit x Hours per unit x Hours per unit
Total hours of production Total hours of production Total hours of production Total hours of production
Wages per hour x $Wages per hour x $Wages per hour x $Wages per hour
Total wages $Total wages $Total wages $Total wages
Total hours of production Total hours of production Total hours of production Total hours of production
Utility costs per hour x $Utility costs per hour x $Utility costs per hour x $Utility costs per hour
Total utilities $Total utilities $Total utilities $Total utilities
Question Content Area
b Compare the flexible budget with the actual expenditures for the first three months.
Line Item Description May June July
Total flexible budget fill in the blank of $ fill in the blank of $ fill in the blank of $
Actual cost fill in the blank of fill in the blank of fill in the blank of
Excess of actual cost over budget fill in the blank of $ fill in the blank of $ fill in the blank of $
What does this comparison suggest?
The Machining Department has performed better than originally thought.
The department is spending more than would be expected.
