The production supervisor of the Machining Department for Paulk Company agreed to the following monthly static budget for the upcoming year:
Paulk Company
Machining Department
Monthly Production Budget
Wages ............ $2,688,000
Utilities ............ 196,000
Depreciation .......... 45,000
Total ............. $2,929,000

The actual amount spent and the actual units produced in the first three months of 2013 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 .......... $24.00
Utility cost per direct labor hour .... $1.75
Direct labor hours per unit ...... 1.4
Planned unit production ...... 80,000
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 $1,854,000 2,236,800 2,798,000 Units Produced 50,000 60,000 75,000