Static budget versus flexible budget

 

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

 

 

 

Rodriguez Company machining Department monthly Production Budget

 

 

Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               $384,000

 

Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                       36,000

 

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                   60,000

 

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               $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:

 

 

 

	amount Spent	units Produced
January	$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:

 

 

 

Wages per hour	$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. Flexible budget for assembly Department

 

Steelcase Inc. is one of the largest manufacturers of office furniture in the United States. In Grand Rapids, Michigan, it assembles filing cabinets in an Assembly Department. Assume the following information for the Assembly   Department:

 

Direct labor per filing cabinet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                 12  minutes

 

Supervisor salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          $150,000  per  month

 

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        $24,500  per  month

 

Direct labor rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          $22  per hour

 

Prepare a flexible budget for 18,000, 20,000, and 22,000 filing cabinets for the month of August 2016 in the Assembly Department, similar to Exhibit    5.