Static Budget vs. Flexible Budget The production supervisor of the Machining Dep
ID: 2565520 • Letter: S
Question
Static Budget vs. Flexible Budget
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 2016 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.
b. Compare the flexible budget with the actual expenditures for the first three months.
What does this comparison suggest?
Nell CompanyMachining Department
Monthly Production Budget Wages $702,000 Utilities 65,000 Depreciation 108,000 Total $875,000
Explanation / Answer
Direct labour hours required to produce:
92000 units:92000×.5=46000 labour hours
83000 units:83000×.5=41,500 labour hours
75,000 units:75,000×.5=37,500 labour hours
A.
Wages
$644,000
(46000×$14)
$581,000
(41500×$14)
$525,000
(37500×$14)
Utilities
$59,800
(46000×$14)
$53,950
(41500×$1.3)
$48750
(37500×$1.3)
B.
C. The department is spending more than would be expected.
January February March Units of production 92,000 83,000 75,000Wages
$644,000
(46000×$14)
$581,000
(41500×$14)
$525,000
(37500×$14)
Utilities
$59,800
(46000×$14)
$53,950
(41500×$1.3)
$48750
(37500×$1.3)
Depreciation $108,000 $108,000 $108,000 Total $811,800 $742,950 $681,750Related Questions
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