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1. Static Budget vs. Flexible Budget

   The production supervisor of the Machining Department for Nell Company agreed to the following monthly static budget for the upcoming year:

   Nell CompanyMachining DepartmentMonthly Production BudgetWages$311,000Utilities16,000Depreciation27,000Total$354,000

   The actual amount spent and the actual units produced in the first three months of 2016 in the Machining Department were as follows:

    Amount SpentUnits ProducedJanuary$334,000 68,000 February319,000 62,000 March305,000 56,000 

   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$21Utility cost per direct labor hour$1.1Direct labor hours per unit0.2Planned monthly unit production74,000

   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 DepartmentFlexible Production BudgetFor the Three Months Ending March 31, 2016 JanuaryFebruaryMarchUnits of productionWages$$$UtilitiesDepreciationTotal$$$Feedback

   For each level of production, show wages, utilities, and depreciation. 

   Consider performance and spending.

   Learning Objective 2, Learning Objective 4.

   b.  Compare the flexible budget with the actual expenditures for the first three months. 

    JanuaryFebruaryMarchTotal flexible budget$$$Actual costExcess of actual cost over budget$$$

   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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