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
Wages	$549,000
Utilities	40,000
Depreciation	66,000
Total	$655,000

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	$619,000		112,000
June	592,000		102,000
July	566,000		92,000

The Machining Department supervisor has been very pleased with this performance because actual expenditures for MayJuly have been significantly less than the monthly static budget of 655,000. 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	$18.00
Utility cost per direct labor hour	$1.30
Direct labor hours per unit	0.25
Planned monthly unit production	122,000

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	112,000	102,000	92,000
	$fill in the blank	$fill in the blank	$fill in the blank
	fill in the blank	fill in the blank	fill in the blank
	fill in the blank	fill in the blank	fill in the blank
Total	$fill in the blank	$fill in the blank	$fill in the blank
Supporting calculations:
Units of production	112,000	102,000	92,000
Hours per unit	x fill in the blank	x fill in the blank	x fill in the blank
Total hours of production	fill in the blank	fill in the blank	fill in the blank
Wages per hour	x $fill in the blank	x $fill in the blank	x $fill in the blank
Total wages	$fill in the blank	$fill in the blank	$fill in the blank
Total hours of production	fill in the blank	fill in the blank	fill in the blank
Utility costs per hour	x $fill in the blank	x $fill in the blank	x $fill in the blank
Total utilities	$fill in the blank	$fill in the blank	$fill in the blank

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

	May	June	July
Total flexible budget	$fill in the blank c	$fill in the blank	$fill in the blank
Actual cost	fill in the blank	fill in the blank	fill in the blank
Excess of actual cost over budget	$fill in the blank	$fill in the blank	$fill in the blank

What does this comparison suggest?

The Machining Department has performed better than originally thought.
The department is spending more than would be expected.