Allison 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 in units for the coming five months follow:

January

40,000

February

50,000

March

60,000

April

60,000

May

62,000

The following data pertains to production policies and manufacturing specifications followed by Allison Manufacturing:

1. The finished goods inventory on January 1 is 32,000 units, each costing $166.06. The desired ending inventory for each month is 80% of the next month's sales.
2. The data on materials used are as follows:

Direct material

Usage Per-Unit of Production

Cost of direct material

Metal

10 lbs

$8/lbs

Components

6 units

$5/unit

Inventory policy dictates that sufficient materials be on hand at the end of the month to produce 50% of the next month's production needs. This is exactly the amount of material on hand on December 31 of the prior year.

1. The direct labour used per unit of output is three hours. The average direct labour cost per hour is $14.25.
2. Manufacturing overhead each month is budgeted using direct labour hours.

Manufacyuring overhead

Fixed-Cost Component ($)

Variable-Cost Component

($/direct labour hour)

Supplies

-

1.00

Power

-

0.50

Maintenance

30,000

0.40

Supervision

16,000

-

Depreciation

200,000

-

Taxes

12,000

-

Others

80,000

0.50

e. Monthly variable selling and administrative expenses are budgeted using units sold.

Fixed-Cost Component ($)

Variable-Cost Component ($/unit sold)

Salaries

50,000

-

Commissions

-

2.00

Depreciation

40,000

-

Shipping

-

1.00

Other

20,000

0.60

1. The unit selling price of the subassembly is $205.
2. All sales and purchases are for cash in the same month. All expenses including direct labour, overhead and selling and administrative except for depreciation, are paid in the same month. The cash balance on January 1 equals $400,000. The firm requires a minimum ending balance of $50,000. If the firm develops 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 the following budgets for the first quarter showing both the monthly and total figures. Note: Assume that the company does not maintain any work in progress inventories.

1. Sales budget
2. Production budget
3. Direct material cost budget
4. Direct labour cost budget
5. Overhead budget
6. Selling and administrative expenses budget
7. Budgeted income statement (Hint: The finished goods inventory unit cost is given in

part a of the question)

1. Cash budget