Question

1. The production supervisor of the Machining Department for Niland Company agreed to the following monthly static budget for the upcoming year:

   Niland Company Machining Department Monthly Production Budget
   Wages	$1,077,000
   Utilities	57,000
   Depreciation	94,000
   Total	$1,228,000

   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
   January	$1,157,000		104,000
   February	1,096,000		94,000
   March	1,048,000		85,000

   The Machining Department supervisor has been very pleased with this performance because actual expenditures for January–March have been significantly less than the monthly static budget of 1,228,000. 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	$19
   Utility cost per direct labor hour	$1
   Direct labor hours per unit	0.5
   Planned monthly unit production	113,000

   a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume depreciation is a fixed cost. If required, use per 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	104,000	94,000	85,000
   	$	$	$
   Total	$	$	$
   Supporting calculations:
   Units of production	104,000	94,000	85,000
   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 actual expenditures for the first three months.

   	January	February	March
   Total flexible budget	$	$	$
   Actual cost
   Excess of actual cost over budget	$	$	$

Answer 1

a)

Niland Company
Machining Department Budget
For the Three Months Ending March 31
	January	February	March
Units of production	104000	94000	85000
Wages	$988000	$893000	$807500
Utilities	52000	47000	42500
Depreciation	94000	94000	94000
Total	$1134000	$1034000	$944000
Supporting calculations:
Units of production	104000	94000	85000
Hours per unit	x $0.50	x $0.50	x $0.50
Total hours of production	52000	47000	42500
Wages per hour	x $19	x $19	x $19
Total wages	$988000	$893000	$807500
Total hours of production	52000	47000	42500
Utility costs per hour	x $1	x $1	x $1
Total utilities	$52000	$47000	$42500

Depreciation is a fixed cost so it will remain same.

b)

	January	February	March
Total flexible budget	$1134000	$1034000	$944000
Actual cost	1157000	1096000	1048000
Excess of actual cost over budget	$23000	$62000	$104000