# Static budget versus flexible budget The production supervisor of the Machining Department for Niland Company agreed to the following monthly static budget for the upcoming year: Niland Company Machining Department Monthly Production Budget Wages \$1,125,000 Utilities 90,000 Depreciation 50,000 Total \$1,265,000 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 \$1,100,000 80,000 February 1,200,000 90,000 March 1,250,000 95,000 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 \$1,265,000. 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 \$15.00 Utility cost per direct labor hour \$1.20 Direct labor hours per unit 0.75 Planned monthly unit production 100,000 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. b. Compare the flexible budget with the actual expenditures for the first three months. What does this comparison suggest?

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

#### Solutions

Chapter
Section
Chapter 22, Problem 22.3EX
Textbook Problem

## Static budget versus flexible budgetThe production supervisor of the Machining Department for Niland Company agreed to the following monthly static budget for the upcoming year: Niland Company Machining Department Monthly Production Budget Wages   \$1,125,000 Utilities   90,000 Depreciation   50,000 Total   \$1,265,000 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 \$1,100,000 80,000 February 1,200,000 90,000 March 1,250,000 95,000   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 \$1,265,000. 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 \$15.00 Utility cost per direct labor hour \$1.20 Direct labor hours per unit 0.75 Planned monthly unit production 100,000 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. b. Compare the flexible budget with the actual expenditures for the first three months. What does this comparison suggest?

Expert Solution

a.

To determine

Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.

Production Budget shows the quantities of units that a company must produce to meet the budgeted sales and inventory.

To Prepare: The flexible budget for the actual units produced for January, February, and March in the machining department.

### Explanation of Solution

The following table shows the flexible budget for the actual units produced.

Expert Solution

b.

To determine

To Compare: The flexible budget with the actual expenditures for the first three months.

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