Budgeting Systems for Management AccountingWarren / Reeve / DuchacExercise 21-3 solution |
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:
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:
a. Prepare a flexible budget for the actual units produced for January, February, and March. Assume depreciation is a fixed cost. Enter all amounts as positive numbers.
b. Compare the flexible budget with the actual expenditures for the first three months.
