Question

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	$863,000
Utilities	65,000
Depreciation	108,000
Total	$1,036,000

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	$979,000		99,000
June	935,000		90,000
July	893,000		81,000

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 1,036,000. 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	$16.00
Utility cost per direct labor hour	$1.20
Direct labor hours per unit	0.50
Planned monthly unit production	108,000

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	99,000	90,000	81,000
	$	$	$
Total	$	$	$
Supporting calculations:
Units of production	99,000	90,000	81,000
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	$	$	$

Feedback

For each level of production, show wages, utilities, and depreciation.

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

	May	June	July
Total flexible budget	$	$	$
Actual cost
Excess of actual cost over budget	$	$

Answer 1

Hagerstown Company
Machining Department Budget
For the Three Months Ending March 31
	May	June	July
Units of production	99,000	90,000	81,000
Wages	792000	720000	648000
Utilities	59400	54000	48600
Depreciation	108000	108000	108000
Total	959400	882000	804600
Supporting calculations:
Units of production	99,000	90,000	81,000
Hours per unit	0.5	0.5	0.5
Total hours of production	49500	45000	40500
Wages per hour	16	16	16
Total wages	792000	720000	648000
Total hours of production	49500	45000	40500
Utility costs per hour	1.2	1.2	1.2
Total utilities	59400	54000	48600
	May	June	July
Total flexible budget	959400	882000	804600
Actual cost	979000	935000	893000
Excess of actual cost over budget	19600	53000	88400
No	has not performed better
Yes	Spending more than expected