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 $271,000 Utilities 16,000 Depreciation 27,000 Total $314,000 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 $296,000 73,000 February 284,000 67,000 March 270,000 60,000 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 314,000. 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 Utility cost per direct labor hour $1 Direct labor hours per unit 0.2 Planned monthly unit production 80,000 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 73,000 67,000 60,000 $ $ $ Total $ $ $ Supporting calculations: Units of production 73,000 67,000 60,000 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

Answer:

A

Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department.

NILAND COMPANY-MACHINING DEPARTMENT
flexible production budget
for three months ending March 31
	January	February	March
Units of production	73000	67000	60000
Wages	248200	227800	204000
Utilities	14600	13400	12000
Depreciation	27000	27000	27000
Total	289800	268200	243000
Supporting calculation
Units of production	73000	67000	60000
Hours per unit	X 0.2	X 0.2	X 0.2
Total Hours of production	14600	13400	12000
Wages Per hour	x 17	x 17	x 17
Total Wages	248200	227800	204000
Total Hours of production	14600	13400	12000
Utility Cost per hour	x 1	x 1	x 1
Total Utility	14600	13400	12000

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b.

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

	January	February	March
Total Flexible budget	289800	268200	243000
Actual Cost	296000	284000	270,000
Excess of actual cost over budget	-6200	-15800	-27000