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

        WHITLEY COMPANY
      Painting Department
Monthly Production Budget
Wages ................$720,000
Utilities ...................46,000
Depreciation ..........16,250
Total ....................$782,250

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

The Painting 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 Painting Department. Additional budget information for the Painting Department is as follows:

Wages per hour .................................$18.00
Utility cost per direct labor hour .......$1.15
Direct labor hours per unit ..................0.80 hrs.
Planned unit production ..................50,000 units

a. Prepare a flexible budget for the actual units produced for January, February, and March in the Painting 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?

Transcribed Image Text:

Amount Spent Units Produced $600,000 January February 37,500 678,000 42,500 March 712,500 45,000