Static Budget versus Flexible Budget The production supervisor of the Machining
ID: 2431627 • Letter: S
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:
The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:
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:
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.
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.
What does this comparison suggest?
Niland CompanyMachining Department
Monthly Production Budget Wages $1,396,000 Utilities 80,000 Depreciation 133,000 Total $1,609,000
Explanation / Answer
Answers
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
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.
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
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