Nell Company Machining Department Monthly Production Budget Wages $464,000 Utili
ID: 2716579 • Letter: N
Question
Nell Company Machining Department Monthly Production Budget
Wages $464,000
Utilities 27,000
Depreciation 45,000
Total $536,000
The actual amount spent and the actual units produced in the first three months of 2014 in the Machining Department were as follows:
Amount Spent Units Produced
January $505,000 112,000
February 482,000 102,000
March 460,000 92,000
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:
Wages per hour $19.00
Utility cost per direct labor hour $1.10
Direct labor hours per unit 0.20
Planned monthly unit production 122,000
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 $ 45000 $ 45000 $45000
Total
b.
Compare the flexible budget with the actual expenditures for the first three months.
January February March
Total flexible budget
Actual cost
Excess of actual cost over budget
Explanation / Answer
Solution:
Solution:
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 112,000 102,000 92,000 Wages $425,600 $387,600 $349,600 Utilities 24,640 22,440 20,240 Depreciation 45,000 45,000 45,000 Total $495,240 $455,040 $414,840 Supporting calculations: Units of production 112,000 102,000 92,000 Hours per unit × 0.20 × 0.20 × 0.20 Total hours of production 22,400 20,400 18,400 Wages per hour × $19.00 × $19.00 × $19.00 Total wages =Total hours of production * wages per hour $ 425,600 $ 387,600 $ 349,600 Total hours of production 22,400 20,400 18,400 Utility cost per hour × $1.10 × $1.10 × $1.10 Total utilities $ 24,640 $ 22,440 $ 20,240 Depreciation is a fixed cost, so it does not “flex” with changes in production. Since it is the only fixed cost, the variable and fixed costs are not classified in the budget. b. Compare the flexible budget with the actual expenditures for the first three months. January February March Total flexible budget $495,240 $455,040 $414,840 Actual cost $505,000 $482,000 $460,000 Excess of actual cost over budget ($9,760) ($26,960) ($45,160) The excess of actual cost over the flexible budget suggests that the Machining De- partment has not performed as well as originally thought. Indeed, the department is spending more than would be expected, and it’s getting worse, given the level of pro- duction for the first three months.
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