Question

Static Budget vs. Flexible Budget 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 51,125,000 Utilities 90,000 Depreciation 50,000 Total $1,265,000 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 $1,100,000 80,000 February 1,200,000 90,000 March 1,250,000 95,000 The Machining Department supervisor has been very pleased with this performance because actual expenditures for January-March have been less than the monthly static budget of $1,265,000. However, the plant manager believes that the budget should not remained 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 $15.00 Utility cost per direct labor hour $1.20 Direct labor hours per unit 0.75

Answer 1

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Niland Company
Calculation of per unit costs
	Wages	Utilities
Cost per hour	15.00	1.20	B
Hors per unit	0.75	0.75	C
Cost per unit	11.25	0.90	D=B*C
Flexible Budget Report
Particulars	Per unit cost	January	February	March	Note
Production (units)		80,000.00	90,000.00	95,000.00	A
Wages	11.25	900,000.00	1,012,500.00	1,068,750.00	This is Wages per unit * A
Utilities	0.90	72,000.00	81,000.00	85,500.00	This is Utilities per unit * A
Depreciation		50,000.00	50,000.00	50,000.00	This is fixed cost
Total costs		1,022,000.00	1,143,500.00	1,204,250.00