The production supervisor of the Machining Department for Gilman Company agreed
ID: 2465963 • Letter: T
Question
The production supervisor of the Machining Department for Gilman Company agreed to to following monthly static budget for the upcoming year: The actual amount spent and the actual units produced in the first three months of 2014 in the Machining Department were as follows: The Machining Department supervisor has been very pleased with this performance, since actual expenditures have been less than the monthly budget. 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: Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume depreciation is a fixed cost. Compare the flexible budget with the actual expenditures for the first three months. What does this comparison suggest?Explanation / Answer
To prepare the flexible budget, we will calculate the budgeted cost of per unit of
Depreciation is fixed cost so monthly budget of $60,000 will be budgeted cost
Given in the budgeted cost as per assignment is
Direct labor hours per unit is .25 or 4 units per hour
Wages per hour is $15.00
Utilty cost is $1.80 of direct labor
Depreciation of $ 60,000 irrespective of units produced
To calculate the flexible budget January for actual units spend, first we will calculate the budgeted direct labor hours on production
= actual production x budgeted direct labor hours per unit
= 90,000 x 0.25
= 22,500 direct labor hours
The budgeted wages will be
= total direct labors x budgeted wages per hour
= 22,500 x 15
= $ 337,500
The budgeted utility cost will be
= total direct labors x budgeted utility cost
=22,500 x 1.80
=$40,500
The depreciation will be $60,000 being a fixed cost
To calculate the flexible budget February for actual units spend, first we will calculate the budgeted direct labor hours on production
= actual production x budgeted direct labor hours per unit
= 100,000 x 0.25
= 25,000 direct labor hours
The budgeted wages will be
= total direct labors x budgeted wages per hour
= 25,000 x 15
= $ 375,000
The budgeted utility cost will be
= total direct labors x budgeted utility cost
=25,000 x 1.80
=$45,000
The depreciation will be $60,000 being a fixed cost
To calculate the flexible budget March for actual units spend, first we will calculate the budgeted direct labor hours on production
= actual production x budgeted direct labor hours per unit
= 110,000 x 0.25
= 27,500 direct labor hours
The budgeted wages will be
= total direct labors x budgeted wages per hour
= 27,500 x 15
= $ 412,500
The budgeted utility cost will be
= total direct labors x budgeted utility cost
=27,500 x 1.80
=$49,500
The depreciation will be $60,000 being a fixed cost
The calculation of variance between flexible budget and actual expenditure for the period January to March is given below
it shows that actual expenditure is more than budget amount and there is negative varaince on every month production
calculation of budget variance of Machining department of Gilman corporation January February March particulars Budget amount Actual Variance Budget amount Actual Variance Budget amount Actual Variance Wages 337,500 375,000 412,500 utilities 40,500 45,000 49,500 depreciation 60,000 60,000 60,000 Total 438,000 450,000 (12,000) 480,000 492,000 (12,000) 522,000 540,000 (18,000)Related Questions
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