Question

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	$515,000
Utilities	38,000
Depreciation	63,000
Total	$616,000

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	$582,000		126,000
February	553,000		114,000
March	530,000		103,000

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 616,000. 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	$15
Utility cost per direct labor hour	$1.1
Direct labor hours per unit	0.25
Planned monthly unit production	137,000

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	126,000	114,000	103,000
	$	$	$
Total	$	$	$
Supporting calculations:
Units of production	126,000	114,000	103,000
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	$	$	$

What does this comparison suggest?

The Machining Department has performed better than originally thought.
The department is spending more than would be expected.

Answer 1

a

Particulars	January	February	March
Production	126,000.00	114,000.00	103,000.00
Variable costs:
wages:
Hours per unit	0.25	0.25	0.25
Total hours	31,500	28,500	25,750
Wages per hour	15	15	15
Total wages	472,500	427,500	386,250
Utility cost per hour	1.10	1.10	1.10
Total utilities	34,650	31,350	28,325
Total variable costs	507,150.00	458,850.00	414,575.00
Depreciation	63,000.00	63,000.00	63,000.00
Total costs	570,150.00	521,850.00	477,575.00

b

Particulars	January	February	March
Total flexible budget	570,150.00	521,850.00	477,575.00
Actual cost	582000	553000	530000
Excess of actual over budget	11,850.00	31,150.00	52,425.00

The department is spending more than would be expected.