Question

Static Budget versus Flexible Budget

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	$208,000
Utilities	19,000
Depreciation	32,000
Total	$259,000

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	$245,000		68,000
June	235,000		62,000
July	226,000		56,000

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 259,000. 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	$14.00
Utility cost per direct labor hour	$1.30
Direct labor hours per unit	0.20
Planned monthly unit production	74,000

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	68,000	62,000	56,000
Wages	?	?	?
Utilities	?	?	?
Depreciation	?	?	?
Total	?	?	?
Supporting calculations:
Units of production	68,000	62,000	56,000
Hours per unit	?	?	?
Total hours of production	?	?	?
Wages per hour	?	?	?
Total wages	?	?	?
Total hours of production	?	?	?
Utility costs per hour	?	?	?
Total utilities	?	?	?

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

Answer 1

	May	June	July
Units of Production	68000	62000	56000
Wages	$           190,400	$          173,600	$        156,800
Utilities	$             17,680	$             16,120	$           14,560
Depreciation	$             32,000	$             32,000	$           32,000
Total	$           240,080	$          221,720	$        203,360
Supporting Calculations
Units of Production	68000	62000	56000
Hours per unit	0.2	0.2	0.2
Total Hours of Production	13600	12400	11200
Wages per hour	$               14.00	$               14.00	$             14.00
Total Wages	$           190,400	$          173,600	$        156,800
Total Hours of Production	13600	12400	11200
Utility Costs per hour	$                  1.30	$                 1.30	$               1.30
Total Utilities	$             17,680	$             16,120	$           14,560
	May	June	July
Total Flexible Budget	$           240,080	$          221,720	$        203,360
Actual Cost	$           245,000	$          235,000	$        226,000
Excess of actual cost over budget	$               4,920	$            13,280	$          22,640