Response to the following problem:
The production supervisor of the Machining Department for Rodriguez Company agreed to the following monthly static budget for the upcoming year:
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Rodriguez Company
Machining Department
Monthly Production Budget
|
|
Wages
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$384,000
|
|
Utilities
|
36,000
|
|
Depreciation
|
60,000
|
|
Total
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$480,000
|
The actual amount spent and the actual units produced in the first three months of 2016 in the Machining Department were as follows:
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Amount Spent
|
Units Produced
|
|
January
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$400,000
|
90,000
|
|
February
|
440,000
|
100,000
|
|
March
|
470,000
|
110,000
|
The Machining Department supervisor has been very pleased with this performance because actual expenditures for January-March have been less than the monthly static budget of $480,000. 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:
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Wages per hour
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$16.00
|
|
Utility cost per direct labor hour
|
$1.50
|
|
Direct labor hours per unit
|
0.20
|
|
Planned monthly 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?