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	$439,000
Utilities	30,000
Depreciation	50,000
Total	$519,000

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	$490,000		106,000
June	470,000		97,000
July	448,000		87,000

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 519,000. 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	$19.00
Utility cost per direct labor hour	$1.30
Direct labor hours per unit	0.20
Planned monthly unit production	116,000

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	106,000	97,000	87,000
Wages	$	$	$
Utilities
Depreciation
Total	$	$	$
Supporting calculations:
Units of production	106,000	97,000	87,000
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.

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

Answer 1

a.Flexible Budget
Hagerstown Company
Machining Department Budget
For the Three Months Ending July 31
	May	June	July
Units of production	106,000	97,000	87,000
Wages	402,800	368,600	330,600
Utilities	27,560	25,220	22,620
Depreciation	50,000	50,000	50,000
Total	480,360	443,820	403,220
Supporting calculations:
Units of production	106,000	97,000	87,000
Hours per unit	0	0	0
Total hours of production	21,200	19,400	17,400
Wages per hour	19	19	19
Total wages	402,800	368,600	330,600
Total hours of production	21,200	19,400	17,400
Utility costs per hour	1.30	1.30	1.30
Total utilities	27,560	25,220	22,620
b.comparison
	May	June	July
Total flexible budget	480,360	443,820	403,220
Actual cost	490,000	470,000	448,000
Excess of actual cost over budget	9,640	26,180	44,780