Question

1. Static Budget versus A budget that adjusts for varying rates of activity.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	$199,000
   Utilities	16,000
   Depreciation	27,000
   Total	$242,000

   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	$229,000		61,000
   February	221,000		56,000
   March	210,000		50,000

   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 $242,000. 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	$15.00
   Utility cost per direct labor hour	$1.20
   Direct labor hours per unit	0.20
   Planned monthly unit production	67,000

   a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume that depreciation is a fixed cost. Enter all amounts as positive numbers. If required, use per unit amounts carried out to two decimal places.

   Niland Company-Machining Department
   Flexible Production Budget
   For the Three Months Ending March 31
   	January	February	March
   Units of production
   Wages	$	$	$
   Utilities
   Depreciation
   Total	$	$	$

   Feedback

   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.	Yes No
   The department is spending more than would be expected.	Yes No

Answer 1

Niland Company
Machining Department Budget
For the Three Months Ending March 31
	January	February	March
Units of production	61,000	56,000	50,000
Wages	183,000	168,000	150,000
Utilities	14,640	13,440	12,000
Depreciation	27,000	27,000	27,000
Total	224,640	208,440	189,000
Supporting calculations:
Units of production	61,000	56,000	50,000
Hours per unit	0.2	0.2	0.2
Total hours of production	12,200	11,200	10,000
Wages per hour	15	15	15
Total wages	183,000	168,000	150,000
Total hours of production	12,200	11,200	10,000
Utility costs per hour	1.2	1.2	1.2
Total utilities	14,640	13,440	12,000
	January	February	March
Total flexible budget	224,640	208,440	189,000
Actual cost	229,000	221,000	210,000
Excess of actual cost over budget	4,360	12,560	21,000
No	has not performed better
Yes	Spending more than expected