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	$514,000
Utilities	36,000
Depreciation	61,000
Total	$611,000

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	$577,000		111,000
June	552,000		101,000
July	527,000		91,000

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 611,000. 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	$17.00
Utility cost per direct labor hour	$1.20
Direct labor hours per unit	0.25
Planned monthly unit production	121,000

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	111,000	101,000	91,000
	$fill in the blank e65ed7ff8019fcd_2	$fill in the blank e65ed7ff8019fcd_3	$fill in the blank e65ed7ff8019fcd_4
	fill in the blank e65ed7ff8019fcd_6	fill in the blank e65ed7ff8019fcd_7	fill in the blank e65ed7ff8019fcd_8
	fill in the blank e65ed7ff8019fcd_10	fill in the blank e65ed7ff8019fcd_11	fill in the blank e65ed7ff8019fcd_12
Total	$fill in the blank e65ed7ff8019fcd_13	$fill in the blank e65ed7ff8019fcd_14	$fill in the blank e65ed7ff8019fcd_15
Supporting calculations:
Units of production	111,000	101,000	91,000
Hours per unit	x fill in the blank e65ed7ff8019fcd_16	x fill in the blank e65ed7ff8019fcd_17	x fill in the blank e65ed7ff8019fcd_18
Total hours of production	fill in the blank e65ed7ff8019fcd_19	fill in the blank e65ed7ff8019fcd_20	fill in the blank e65ed7ff8019fcd_21
Wages per hour	x $fill in the blank e65ed7ff8019fcd_22	x $fill in the blank e65ed7ff8019fcd_23	x $fill in the blank e65ed7ff8019fcd_24
Total wages	$fill in the blank e65ed7ff8019fcd_25	$fill in the blank e65ed7ff8019fcd_26	$fill in the blank e65ed7ff8019fcd_27
Total hours of production	fill in the blank e65ed7ff8019fcd_28	fill in the blank e65ed7ff8019fcd_29	fill in the blank e65ed7ff8019fcd_30
Utility costs per hour	x $fill in the blank e65ed7ff8019fcd_31	x $fill in the blank e65ed7ff8019fcd_32	x $fill in the blank e65ed7ff8019fcd_33
Total utilities	$fill in the blank e65ed7ff8019fcd_34	$fill in the blank e65ed7ff8019fcd_35	$fill in the blank e65ed7ff8019fcd_36

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

	May	June	July
Total flexible budget	$fill in the blank 15eae9f5ffd1fc0_1	$fill in the blank 15eae9f5ffd1fc0_2	$fill in the blank 15eae9f5ffd1fc0_3
Actual cost	fill in the blank 15eae9f5ffd1fc0_4	fill in the blank 15eae9f5ffd1fc0_5	fill in the blank 15eae9f5ffd1fc0_6
Excess of actual cost over budget	$fill in the blank 15eae9f5ffd1fc0_7	$fill in the blank 15eae9f5ffd1fc0_8	$fill in the blank 15eae9f5ffd1fc0_9

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