OPERATING BUDGET, COMPREHENSIVE ANALYSIS Woodruff Manufacturing produces a subassembly used in the production of jet aircraft engines. The assembly is sold to engine manufacturers and aircraft maintenance facilities.

Projected sales for the coming four months follow:

January 40,000 February 50,000 March 60,000 April 60,000 The following data pertain to production policies and manufacturing specifications followed by Woodruff Manufacturing:

a. Finished goods inventory on January 1 is 32,000 units, each costing $148.71. The desired ending inventory for each month is 80 percent of the next month’s sales.

b. The data on materials used are as follows:

Direct Material Per-Unit Usage Unit Cost ($)

Metal 10 lbs. 8 Components 6 2 Inventory policy dictates that sufficient materials be on hand at the beginning of the month to produce 50 percent of that month’s estimated sales. This is exactly the amount of material on hand on January 1.

c. The direct labor used per unit of output is four hours. The average direct labor cost per hour is $9.25.

d. Overhead each month is estimated using a flexible budget formula. (Activity is measured in direct labor hours.)
Fixed-Cost Component ($)
Variable-Cost Component ($)
Supplies — 1.00 Power — 0.50 Maintenance 30,000 0.40 Supervision 16,000 —
Depreciation 200,000 —
Taxes 12,000 —
Other 80,000 1.50

e. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Activity is measured in units sold.)
Fixed Costs ($) Variable Costs ($)
Salaries 50,000 —
Commissions — 2.00 Depreciation 40,000 —
Shipping — 1.00 Other 20,000 0.60

f. The unit selling price of the subassembly is $180.
g. All sales and purchases are for cash. The cash balance on January 1 equals $400,000.
If the firm develops a cash shortage by the end of the month, sufficient cash is borrowed to cover the shortage. Any cash borrowed is repaid at the end of the quarter, as is the interest due (cash borrowed at the end of the quarter is repaid at the end of the following quarter). The interest rate is 12 percent per annum. No money is owed at the beginning of January.
Required:
. Prepare a monthly operating budget for the first quarter with the following schedules. (Assume that there is no change in work-in-process inventories.)

a. Sales budget

b. Production budget

c. Direct materials purchases budget

d. Direct labor budget

e. Overhead budget

f. Selling and administrative expenses budget g. Ending finished goods inventory budget h. Cost of goods sold budget i. Budgeted income statement j. Cash budget . Form a group with two or three other students. Locate a manufacturing plant in your community that has headquarters elsewhere. Interview the controller for the plant regarding the master budgeting process. Ask when the process starts each year, what schedules and budgets are prepared at the plant level, how the controller forecasts the amounts, and how those schedules and budgets fit in with the overall corporate budget. Is the budgetary process participative? Also, find out how budgets are used for performance analysis. Write a summary of the interview.
Problem