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In: Accounting

The production supervisor of the Machining Department for Niland Company agreed to the following monthly static...

  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 $912,000
    Utilities 56,000
    Depreciation 92,000
    Total $1,060,000

    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 $1,000,000 93,000
    February 948,000 84,000
    March 908,000 76,000

    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 An accounting device used to plan and control resources of operational departments and divisions.budget of 1,060,000. 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 $18
    Utility cost per direct labor hour $1.1
    Direct labor hours per unit 0.5
    Planned monthly unit production 101,000

    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 93,000 84,000 76,000
    Research and development
    • Advertising
    • Rent
    • Research and development
    • Supplies
    • Wages
    $ $ $
    Rent
    • Advertising
    • Rent
    • Research and development
    • Supplies
    • Utilities
    Depreciation
    • Advertising
    • Depreciation
    • Rent
    • Research and development
    • Supplies
    Total $ $ $
    Supporting calculations:
    Units of production 93,000 84,000 76,000
    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.

    Learning Objective 2, Learning Objective 4.

    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

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