Question

Static Budget versus Flexible Budget

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	$1,396,000
Utilities	80,000
Depreciation	133,000
Total	$1,609,000

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	$1,517,000		122,000
February	1,447,000		111,000
March	1,380,000		100,000

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 $1,609,000. 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	$21.00
Utility cost per direct labor hour	$1.20
Direct labor hours per unit	0.50
Planned monthly unit production	133,000

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. 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	$	$	$

Feedback

For each level of production, show wages, utilities, and depreciation.

Consider performance and spending.

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.	No
The department is spending more than would be expected.	Yes

Answer 1

• All working forms part of the answer
• Requirement ‘a’

Niland Company-Machining Department
Flexible Production Budget
For the Three Months Ending March 31
	January	February	March
Units of production	122,000	111,000	100,000
Wages	$                 1,281,000.00	$      1,165,500.00	$           1,050,000.00
Utilities	$                     73,200.00	$           66,600.00	$               60,000.00
Depreciation	$                   133,000.00	$         133,000.00	$             133,000.00
Total	$                 1,487,200.00	$      1,365,100.00	$           1,243,000.00

---Working for above

Niland Company-Machining Department
Flexible Production Budget
For the Three Months Ending March 31
	January	February	March
Units of production	122000	111000	100000
Wages [Units x labor hours per unit x wages per hour]	=+(122000*0.5*21)	=+(111000*0.5*21)	=+(100000*0.5*21)
Utilities [ Units x labor hours per unit x $1.2]	=122000*0.5*1.2	=111000*0.5*1.2	=100000*0.5*1.2
Depreciation	133000	133000	133000
Total	Total	Total	Total

• Requirement ‘b’

	January	February	March
Total flexible budget	$                 1,487,200.00	$      1,365,100.00	$           1,243,000.00
Actual cost	$                 1,517,000.00	$      1,447,000.00	$           1,380,000.00
Excess of actual cost over budget	$                     29,800.00	$           81,900.00	$             137,000.00

---Rest already filled in by you correctly.