chap 22 # 2

Static Budget versus Flexible Budget

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

Celtic Company Machining Department Monthly Production Budget
Wages	$1,127,000
Utilities	56,000
Depreciation	94,000
Total	$1,277,000

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	$1,203,000		94,000
February	1,140,000		85,000
March	1,092,000		77,000

The Machining Department supervisor has been very pleased with this performance because actual expenditures for JanuaryMarch have been less than the monthly static budget of $1,277,000. 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	$22.00
Utility cost per direct labor hour	$1.10
Direct labor hours per unit	0.50
Planned monthly unit production	102,000

Question Content Area

a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume that depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.

Celtic Company-Machining Department Flexible Production Budget For the Three Months Ending March 31

	January	February	March
Units of production
Wages
Utilities
Depreciation
Total

Question Content Area

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

	January	February	March
Actual cost
Total flexible budget
Excess of actual cost over budget