Static Budget versus Flexible Budget

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	$652,000
Utilities	31,000
Depreciation	52,000
Total	$735,000

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	$692,000		63,000
February	667,000		58,000
March	632,000		52,000

The Machining Department supervisor has been very pleased withthis performance because actual expenditures for January–March havebeen less than the monthly static budget of $735,000. However, theplant manager believes that the budget should not remain fixed forevery month but should “flex” or adjust to the volume of work thatis produced in the Machining Department. Additional budgetinformation for the Machining Department is as follows:

Wages per hour	$19.00
Utility cost per direct labor hour	$0.90
Direct labor hours per unit	0.50
Planned monthly unit production	69,000

a. Prepare a flexible budget for the actualunits produced for January, February, and March in the MachiningDepartment. Assume that depreciation is a fixed cost. Enter allamounts as positive numbers. If required, use per unit amountscarried out to two decimal places.

Niland Company-Machining Department
Flexible Production Budget
For the Three Months Ending March 31
	January	February	March
Units of production
Wages	$	$	$
Utilities
Depreciation
Total	$	$	$

Feedback

For each level of production, show wages, utilities, anddepreciation.

Consider performance and spending.

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.	No
The department is spending more than would be expected.	Yes