The production supervisor of the Machining Department for NilandCompany agreed to the following monthly static budget for theupcoming year:
Niland Company
Machining Department
Monthly Production Budget |
| Wages | $867,000 |
| Utilities | 52,000 |
| Depreciation | 87,000 |
| Total | $1,006,000 |
The actual amount spent and the actual units produced in thefirst three months in the Machining Department were as follows:
| Amount Spent | Units Produced |
| January | $948,000 | | 106,000 | |
| February | 910,000 | | 97,000 | |
| March | 864,000 | | 87,000 | |
The Machining Department supervisor has been very pleased withthis performance because actual expenditures for January–March havebeen significantly less than the monthly static budget of1,006,000. However, the plant manager believes that the budgetshould not remain fixed for every month but should “flex” or adjustto the volume of work that is produced in the Machining Department.Additional budget information for the Machining Department is asfollows:
| Wages per hour | $15 |
| Utility cost per direct labor hour | $0.9 |
| Direct labor hours per unit | 0.5 |
| Planned monthly unit production | 116,000 |
a. Prepare a flexible budget for the actualunits produced for January, February, and March in the MachiningDepartment. Assume depreciation is a fixed cost. If required, useper unit amounts carried out to two decimal places.
| Niland Company |
| Machining Department Budget |
| For the Three Months Ending March 31 |
| January | February | March |
| Units of production | 106,000 | 97,000 | 87,000 |
| Wages | $ | $ | $ |
| Utilities | | | |
| Depreciation | | | |
| Total | $ | $ | $ |
| Supporting calculations: | | | |
| Units of production | 106,000 | 97,000 | 87,000 |
| Hours per unit | x | x | x |
| Total hours of production | | | |
| Wages per hour | x $ | x $ | x $ |
| Total wages | $ | $ | $ |
| Total hours of production | | | |
| Utility costs per hour | x $ | x $ | x $ |
| Total utilities | $ | $ | $ |
b. Compare the flexible budget with the actualexpenditures for the first three months.
| January | February | March |
| Total flexible budget | $ | $ | $ |
| Actual cost | | | |
| Excess of actual cost over budget | $ | $ | $ |
What does this comparison suggest?
| The Machining Department has performed better than originallythought. | Yes/No? |
| The department is spending more than would be expected. | Yes/No? |
Please show work for each step.
