Static Budget vs. Flexible Budget
The production supervisor of the Machining Department for Nell Company agreed to the following monthly static budget for the upcoming year:
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Nell Company
Machining Department
Monthly Production Budget
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Wages
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$232,000
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Utilities
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16,000
|
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Depreciation
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28,000
|
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Total
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$276,000
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The actual amount spent and the actual units produced in the first three months of 2014 in the Machining Department were as follows:
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Amount Spent
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Units Produced
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January
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$261,000
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50,000
|
|
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February
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252,000
|
|
46,000
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|
|
March
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238,000
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|
41,000
|
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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:
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Wages per hour
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$17.00
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Utility cost per direct labor hour
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$1.20
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Direct labor hours per unit
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0.25
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Planned monthly unit production
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55,000
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a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume depreciation is a fixed cost. Enter all amounts as positive numbers. If required, use per unit amounts carried out to two decimal places.
Compare the flexible budget with the actual expenditures for the first three months.
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January
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February
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March
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Total flexible budget
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$
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$
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$
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Actual cost
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|
|
|
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Excess of actual cost over budget
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$
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$
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$
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What does this comparison suggest?
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The Machining Department has performed better than originally thought.
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Select Yes No Correct 10 of Item 2
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The department is spending more than would be expected.
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Select Yes No Correct 11 of Item 2
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