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

Nell Company

Machining Department

Monthly Production Budget

Wages ...... $540,000

Utilities ...... 36,000

Depreciation .... 60,000

Total ...... $636,000

The actual amount spent and the actual units produced in the first three months of 2010 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 "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 ........ $18.00Utility cost per direct labor hour ..$1.20Direct labor hours per unit ..... 0.25Planned 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 comparison suggest?

Amount Spent Units Produced 110,000 100,000 January $600,000 570,000 February March 545,000 90,000