Reference no: EM132354666
Question :
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
|
$1,055,000
|
|
Utilities
|
48,000
|
|
Depreciation
|
80,000
|
|
Total
|
$1,183,000
|
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
|
$1,114,000
|
88,000
|
|
February
|
1,060,000
|
80,000
|
|
March
|
1,008,000
|
72,000
|
The Machining Department supervisor has been very pleased with this performance because actual expenditures for January-March have been significantly less than the monthly static budget of 1,183,000. 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
|
$22
|
|
Utility cost per direct labor hour
|
$1
|
|
Direct labor hours per unit
|
0.5
|
|
Planned monthly unit production
|
96,000
|
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. If required, use per unit amounts carried out to two decimal places.
Niland Company
Machining Department Budget
For the Three Months Ending March 31
|
|
January
|
February
|
March
|
|
Units of production
|
88,000
|
80,000
|
72,000
|
|
Wages
|
|
|
|
|
Utilities
|
|
|
|
|
Depreciation
|
|
|
|
|
Total
|
|
|
|
|
Supporting calculations:
|
|
|
|
|
Units of production
|
88,000
|
80,000
|
72,000
|
|
Hours per unit
|
|
|
|
|
Total hours of production
|
|
|
|
|
Wages per hour
|
|
|
|
Total wages
Total hours of production Utility costs per hour
Total utilities
b. Compare the flexible budget with the actual expenditures for the first three months.
January February March
Total flexible budget
Actual cost
Excess 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.