The production supervisor of the Machining Department for Nell Company agreed to

Question

The production supervisor of the Machining Department for Nell 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 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:

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.

Nell Company-Machining Department

Flexible Production Budget

For the Three Months Ending March 31, 2014

January

February

March

Units of production

Wages

$  

$  

$  

Utilities

Depreciation

Total

$  

$  

$  

b. Compare the flexible budget with the actual expenditures for the first three months.

What does this comparison suggest?

Explanation / Answer

a. Flexible production budget Jan Feb Mar Units of production 116000 105000 95000 Wages 510400 462000 418000 (116000*0.20*22) (105000*0.20*22) (95000*0.20*22) Utilities 27840 25200 22800 (116000*0.20*1.2) (105000*0.20*1.2) (95000*0.20*1.2) Depreciation 50000 50000 50000 Total 588240 537200 490800 b. Jan Feb Mar Total flexible budget 588240 537200 490800 Actual cost 600000 569000 545000 Excess of actual cost over budget 11760 31800 54200 The Machining Department has performed better than originally thought. No The department is spending more than would be expected. Yes

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