Reference no: EM132686030

Problem - Static budget vs. flexible budget - The production supervisor of the Machining Department for Cramer Company agreed to the following monthly static budget for the upcoming year:

Cramer Company Machining Department Monthly Production Budget
Wages	$552,000
Utilities	48,300
Depreciation	60,000
Total	$660,300

The actual amount spent and the actual units produced in the first three months of 2012 in the Machining Department were as follows:

	Amount Spent	Units Produced
January	$545,000	90,000
February	595,000	100,000
March	649,000	110,000

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	$16.00
Utility cost per direct labor hour	$1.40
Direct labor hours per unit	0.30
Planned monthly unit production	115,000

Required -

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.

b. Compare the flexible budget with the actual expenditures for the first three months. What does this comparison suggest?