Prepare a flexible budget for the actual units produced for May, June, and July in the Machining Department.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Static Budget versus Flexible Budget
The production supervisor of the Machining Department for Hagerstown Company agreed to the following monthly static budget for the upcoming year:
| Hagerstown Company Machining Department Monthly Production Budget |
|
| Wages | $265,000 |
| Utilities | 15,000 |
| 25,000 | |
| Total | $305,000 |
The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:
| Amount Spent | Units Produced | |||
| May | $287,000 | 54,000 | ||
| June | 273,000 | 49,000 | ||
| July | 260,000 | 44,000 |
The Machining Department supervisor has been very pleased with this performance because actual expenditures for May–July have been significantly less than the monthly static budget of 305,000. 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 | $18.00 |
| Utility cost per direct labor hour | $1.00 |
| Direct labor hours per unit | 0.25 |
| Planned monthly unit production | 59,000 |
a. Prepare a flexible budget for the actual units produced for May, June, and July in the Machining Department. Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.
| Hagerstown Company | |||
| Machining Department Budget | |||
| For the Three Months Ending July 31 | |||
| May | June | July | |
| Units of production | 54,000 | 49,000 | 44,000 |
| Wages | $fill in the blank 7e2fd4070fa2fd1_2 | $fill in the blank 7e2fd4070fa2fd1_3 | $fill in the blank 7e2fd4070fa2fd1_4 |
| Utilities | fill in the blank 7e2fd4070fa2fd1_6 | fill in the blank 7e2fd4070fa2fd1_7 | fill in the blank 7e2fd4070fa2fd1_8 |
| Depreciation | fill in the blank 7e2fd4070fa2fd1_10 | fill in the blank 7e2fd4070fa2fd1_11 | fill in the blank 7e2fd4070fa2fd1_12 |
| Total | $fill in the blank 7e2fd4070fa2fd1_13 | $fill in the blank 7e2fd4070fa2fd1_14 | $fill in the blank 7e2fd4070fa2fd1_15 |
| Supporting calculations: | |||
| Units of production | 54,000 | 49,000 | 44,000 |
| Hours per unit | x fill in the blank 7e2fd4070fa2fd1_16 | x fill in the blank 7e2fd4070fa2fd1_17 | x fill in the blank 7e2fd4070fa2fd1_18 |
| Total hours of production | fill in the blank 7e2fd4070fa2fd1_19 | fill in the blank 7e2fd4070fa2fd1_20 | fill in the blank 7e2fd4070fa2fd1_21 |
| Wages per hour | x $fill in the blank 7e2fd4070fa2fd1_22 | x $fill in the blank 7e2fd4070fa2fd1_23 | x $fill in the blank 7e2fd4070fa2fd1_24 |
| Total wages | $fill in the blank 7e2fd4070fa2fd1_25 | $fill in the blank 7e2fd4070fa2fd1_26 | $fill in the blank 7e2fd4070fa2fd1_27 |
| Total hours of production | fill in the blank 7e2fd4070fa2fd1_28 | fill in the blank 7e2fd4070fa2fd1_29 | fill in the blank 7e2fd4070fa2fd1_30 |
| Utility costs per hour | x $fill in the blank 7e2fd4070fa2fd1_31 | x $fill in the blank 7e2fd4070fa2fd1_32 | x $fill in the blank 7e2fd4070fa2fd1_33 |
| Total utilities | $fill in the blank 7e2fd4070fa2fd1_34 | $fill in the blank 7e2fd4070fa2fd1_35 | $fill in the blank 7e2fd4070fa2fd1_36 |
For each level of production, show wages, utilities, and depreciation.
b. Compare the flexible budget with the actual expenditures for the first three months.
| May | June | July | |
| Total flexible budget | $fill in the blank 6700c3091ffb02f_1 | $fill in the blank 6700c3091ffb02f_2 | $fill in the blank 6700c3091ffb02f_3 |
| Actual cost | fill in the blank 6700c3091ffb02f_4 | fill in the blank 6700c3091ffb02f_5 | fill in the blank 6700c3091ffb02f_6 |
| Excess of actual cost over budget | $fill in the blank 6700c3091ffb02f_7 | $fill in the blank 6700c3091ffb02f_8 | $fill in the blank 6700c3091ffb02f_9 |
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