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1. Static Budget versus A budget that adjusts for varying rates of activity.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
   Wages	$2,250,000
   Utilities	72,000
   Depreciation	36,000
   Total	$2,358,000

   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
   May	$1,600,000		40,000
   June	1,950,000		48,000
   July	2,200,000		52,000

   The Machining Department supervisor has been very pleased with this performance because actual expenditures for MayJuly have been significantly less than the monthly static An accounting device used to plan and control resources of operational departments and divisions.budget of $2,358,000. 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:

   Wages per hour	$25.00
   Utility cost per direct labor hour	$0.80
   Direct labor hours per unit	1.5
   Planned monthly unit production	60,000

   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 31
   	May	June	July
   Units of production	40,000	48,000	52,000
   Advertising Rent Research and development Supplies Wages	$	$	$
   Advertising Rent Research and development Supplies Utilities
   Advertising Depreciation Rent Research and development Supplies
   Total	$	$	$
   Supporting calculations:
   Units of production	40,000	48,000	52,000
   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	$	$	$

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

   	May		June		July
   Total flexible budget	$		$		$
   Actual cost
   Excess of actual cost over budget	$		$		$

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