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 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.

For each level of production, show wages, utilities, and depreciation.

Consider performance and spending.

Learning Objective 2, Learning Objective 4.

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

What does this comparison suggest?

Explanation / Answer

a) Flexible budget production Jan Feb March units of production 61,000 56,000 50,000 Wages 640500 588000 525000 Utilities 36600 33600 30000 Depreciation 67,000 67,000 67,000 total 744100 688600 622000 b) Jan Feb march Total flexible budget 744100 688600 622000 Actual cost 759,000 730,000 690,000 excess of actual cost over budget 14,900 41,400 68,000 c) The department is spending more than would be expected

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