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	$594,000
Utilities	35,000
Depreciation	59,000
Total	$688,000

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	$648,000		99,000
February	618,000		90,000
March	589,000		81,000

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 $688,000. 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	$22.00
Utility cost per direct labor hour	$1.30
Direct labor hours per unit	0.25
Planned monthly unit production	108,000

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	$	$	$

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

			Jan	Feb	March
units of production			99,000	90,000	81,000
Wages			544500	495000	445500
Utilities			32175	29250	26325
Depreciation			59,000	59,000	59,000
total			635675	583250	530825
supporting calculations:
units of production			99,000	90,000	81,000
hours per unit			0.25	0.25	0.25
total hours of production			24750	22500	20250
Wages per hour			22	22	22
total wages			544500	495000	445500
total hours of production			24750	22500	20250
utility costs per hour			1.3	1.3	1.3
total utility			32175	29250	26325
b)			January	Feburary	March
Total Flexible Budget			635675	583250	530825
Actual cost			648,000	618,000	589,000
Excess of actual cost over budget			12,325	34,750	58,175
performed better than orginally thought					NO
Department is spending more					YES