Static Budget versus Flexible Budget The production supervisor of the Machining Department for Celtic Company agreed to the following monthly static budget for the upcoming year: Celtic Company Machining Department Monthly Production Budget Wages $759,000 Utilities 43,000 Depreciation 71,000 Total $873,000 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 January $822,000 87,000 February 783,000 79,000 March 745,000 71,000 The Machining Department supervisor has been very pleased with this performance because actual expenditures for January–March have been less than the monthly static budget of $873,000. 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 $16.00 Utility cost per direct labor hour $0.90 Direct labor hours per unit 0.50 Planned monthly unit production 94,000 Question Content Area
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 Celtic Company agreed to the following monthly static budget for the upcoming year:
| Celtic Company Machining Department Monthly Production Budget |
|
| Wages | $759,000 |
| Utilities | 43,000 |
| 71,000 | |
| Total | $873,000 |
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 |
|||
| January | $822,000 | 87,000 | ||
| February | 783,000 | 79,000 | ||
| March | 745,000 | 71,000 |
The Machining Department supervisor has been very pleased with this performance because actual expenditures for January–March have been less than the monthly static budget of $873,000. 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 | $16.00 |
| Utility cost per direct labor hour | $0.90 |
| Direct labor hours per unit | 0.50 |
| Planned monthly unit production | 94,000 |
Question Content Area
a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume that depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.
| January | February | March | |
| Units of production | fill in the blank 78f531f75faffe8_1 | fill in the blank 78f531f75faffe8_2 | fill in the blank 78f531f75faffe8_3 |
| Wages | $fill in the blank 78f531f75faffe8_4 | $fill in the blank 78f531f75faffe8_5 | $fill in the blank 78f531f75faffe8_6 |
| Utilities | fill in the blank 78f531f75faffe8_7 | fill in the blank 78f531f75faffe8_8 | fill in the blank 78f531f75faffe8_9 |
| Depreciation | fill in the blank 78f531f75faffe8_10 | fill in the blank 78f531f75faffe8_11 | fill in the blank 78f531f75faffe8_12 |
| Total | $fill in the blank 78f531f75faffe8_13 | $fill in the blank 78f531f75faffe8_14 | $fill in the blank 78f531f75faffe8_15 |
b. Compare the flexible budget with the actual expenditures for the first three months.
| January | February | March | |
| Actual cost | $fill in the blank a11c45fd5031fde_1 | $fill in the blank a11c45fd5031fde_2 | $fill in the blank a11c45fd5031fde_3 |
| Total flexible budget | fill in the blank a11c45fd5031fde_4 | fill in the blank a11c45fd5031fde_5 | fill in the blank a11c45fd5031fde_6 |
| Excess of actual cost over budget | $fill in the blank a11c45fd5031fde_7 | $fill in the blank a11c45fd5031fde_8 | $fill in the blank a11c45fd5031fde_9 |
What does this comparison suggest?
| The Machining Department has performed better than originally thought. |
|
| The department is spending more than would be expected. |
|
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