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	$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	$	$	$

Answer 1

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