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 Utilities Depreciation Total 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 100,000 May June $1,090,000 49,000 82,000 $1,221,000 $1,150,000 1,095,000 1,042,000 91,000 82,000 July 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 1,221,000. 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 Utility cost per direct labor hour Direct labor hours per unit Planned monthly unit production $20.00 $0.90 0.50 109,000
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
Utilities
Depreciation
Total
$1,090,000
49,000
82,000
$1,221,000
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
100,000
91,000
82,000
May
June
July
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 1,221,000. 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:
$1,150,000
1,095,000
1,042,000
Wages per hour
Utility cost per direct labor hour
Direct labor hours per unit
Planned monthly unit production
$20.00
$0.90
0.50
109,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9f495d01-8e94-4a58-9c46-b1ef030cc39b%2Feba7aa09-e7ea-4c14-b9d7-f22f643d4c89%2F8vx790p_processed.png&w=3840&q=75)
![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
Line Item Description
Units of production
Wages
Utilities
Depreciation
Total
Machining Department Budget
For the Three Months Ending July 31
June
91,000
Supporting calculations:
Units of production
Hours per unit
Total hours of production
Wages per hour
Total wages
Total hours of production
Utility costs per hour
Total utilities
Feedback
X $
Total flexible budget
Actual cost
x $
May
100,000
12,000 X
Excess of actual cost over budget
What does this comparison suggest?
100,000
$
X
x $
x $
91,000
Check My Work
For each level of production, show wages, utilities, and depreciation.
x $
x $
b. Compare the flexible budget with the actual expenditures for the first three months.
May
July
82,000
82,000
24,000 X
X
X
The Machining Department has performed better than originally thought. No
The department is spending more than would be expected. Yes
June
✓
July
X](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9f495d01-8e94-4a58-9c46-b1ef030cc39b%2Feba7aa09-e7ea-4c14-b9d7-f22f643d4c89%2Fvh8eo8a_processed.png&w=3840&q=75)
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