The production supervisor of the Machining Department for Gilman Company agreed to the following monthly static budget for the upcoming year:
Gilman Company
Machining Department
Monthly Production Budget
Wages ................ $450,000Utilities .............. 54,000
Depreciation............ 60,000
Total ................ $564,000
The actual amount spent and the actual units produced in the first three months of 2014 in the Machining Department were as follows:

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 €œflex€ 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 ......$ 1.80
Direct labor hours per unit ..........0.25
Planned monthly unit production ...... 120,000
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.
b. Compare the flexible budget with the actual expenditures for the first three months. What does this comparisonsuggest?

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January February March Amount Spent $450,000 492,000 540,000 Units Produced 90,000 100,000 110,000