Question

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 Utilities $420,000 30,000 50,000 $500,000 Depreciation Total July 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 $472,000 110,000 June 451,000 100,000 430,000 90,000 The Machining Department supervisor has been very pleased with this performance because actual expenditures for May-July have been significantly less than the monthly static budget of 500,000. 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 $14.00 Utility cost per direct labor hour $1.00 Direct labor hours per unit 0.25 Planned monthly unit production 120,000

Answer 1

Jangerstown Company
Machining Department Budget
For the Three Months Ending March 31
	January	February	March
Units of production	110,000	100,000	90,000
Wages	$385,000.00	$350,000.00	$315,000.00
Utilities	$27,500.00	$25,000.00	$22,500.00
Depreciation	$50,000.00	$50,000.00	$50,000.00
Total	$462,500.00	$425,000.00	$387,500.00
Supporting calculations:
Units of production (a)	110,000	100,000	90,000
Hours per unit (b)	0.25	0.25	0.25
Total hours of production (c=axb)	27500	25000	22500
Wages per hour (d)	$14.00	$14.00	$14.00
Total wages (e=cXd)	$385,000.00	$350,000.00	$315,000.00
Total hours of production (c )	27500	25000	22500
Utility costs per hour (d)	$1.00	$1.00	$1.00
Total utilities (e=cXd)	$27,500.00	$25,000.00	$22,500.00

b. Compare the flexible budget with the actual expenditures for the first three months.
	January	February	March
Total flexible budget	$462,500.00	$425,000.00	$387,500.00
Actual cost	$472,000.00	$451,000.00	$430,000.00
Excess of actual cost over budget	$9,500.00	$26,000.00	$42,500.00