Compare the flexible budget with the actual expenditures

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Problem - Static budget vs. flexible budget - The production supervisor of the Machining Department for Cramer Company agreed to the following monthly static budget for the upcoming year:

Cramer Company Machining Department Monthly Production Budget

Wages

$552,000

Utilities

48,300

Depreciation

60,000

Total

$660,300

The actual amount spent and the actual units produced in the first three months of 2012 in the Machining Department were as follows:


Amount Spent

Units Produced

January

$545,000

90,000

February

595,000

100,000

March

649,000

110,000

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

$16.00

Utility cost per direct labor hour

$1.40

Direct labor hours per unit

0.30

Planned monthly unit production

115,000

Required -

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?

Reference no: EM132686030

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