Question

In: Accounting

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

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 $310,000
Utilities 15,000
Depreciation 26,000
Total $351,000

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 $331,000 71,000
June 312,000 64,000
July 299,000 58,000

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 351,000. 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 $20.00
Utility cost per direct labor hour $1.00
Direct labor hours per unit 0.20
Planned monthly unit production 77,000

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 71,000 64,000 58,000
Wages $ $ $
Utilities
Depreciation
Total $ $ $
Supporting calculations:
Units of production 71,000 64,000 58,000
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.

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

May June July
Total flexible budget $ $ $
Actual cost
Excess of actual cost over budget $ $ $

Solutions

Expert Solution

Hagerstown Company
Machining Department Budget
For the Three Months Ending July 31
May June July
Units of production 71,000 64,000 58,000
Wages 284000 256000 232000
Utilities 14200 12800 11600
Depreciation 26000 26000 26000
Total 324200 294800 269600
Supporting calculations:
Units of production 71,000 64,000 58,000
Hours per unit 0.2 0.2 0.2
Total hours of production 14200 12800 11600
Wages per hour 20 20 20
Total wages 284000 256000 232000
Total hours of production 14200 12800 11600
Utility costs per hour 1 1 1
Total utilities 14200 12800 11600
January February March
Total flexible budget        324,200        294,800        269,600
Actual cost        331,000        312,000        299,000
Excess of actual cost over budget             6,800           17,200           29,400

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