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 $484,000 Utilities 36,000 Depreciation 61,000 Total $581,000 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 $549,000 111,000 February 525,000 101,000 March 502,000 91,000 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 $581,000. 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 $16.00 Utility cost per direct labor hour $1.20 Direct labor hours per unit 0.25 Planned monthly unit production 121,000 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.

Answer 1

(a) According to the question we need to prepare the flexible budget for the actual units produced for January, February, and March in the Machining Department.

Niland Company Flexible Production budget For the three months January, February, and March
Particulars	January	February	March
Units produced	111,000	101,000	91,000
Wages(wn.1) (a)	$444,000	$404,000	$364,000
Utilities (wn.2) (b)	$33,300	$30,300	$27,300
Depreciation (c) (wn.3)	$61,000	$61,000	$61,000
Total (a+b+c)	$538,300	$495,300	$452,300

Working notes:

1.Calculation of wages:

Particulars	January	February	March
Units produced (a)	111,000	101,000	91,000
Direct labor hours per unit (b)	0.25	0.25	0.25
Total hours of production (c=a*b)	27,750	25,250	22,750
Wages per hour (d)	$16	$16	$16
Total wages (c*d)	$444,000	$404,000	$364,000

2. Calculation of utilities:

Particulars	January	February	March
Total hours of production (from wn.1)(a)	27,750	25,250	22,750
Utility cost per direct labor hour (b)	$1.20	$1.20	$1.20
Total utilities (a*b)	$33,300	$30,300	$27,300

3. Depreciation is considered as fixed cost, hence remains remains same in all the months.