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 $ 88,500 Commissions $1.40 Depreciation 25,000 Shipping 3.60 Other 137,000 1.60 f. The unit selling price of the wiring harness assembly is $110. g. In February, the company plans to purchase land for future expansion. The land costs $68,000. h. All sales and purchases are for cash. The cash balance on January 1 equals $62,800. The firm wants to have an ending cash balance of at least $25,000. If a cash shortage develops, sufficient cash is borrowed to cover the shortage and provide the desired ending balance. Any cash borrowed must be borrowed in $1,000 increments and is repaid the following month, as is the interest due. The interest rate is 12 percent per annum. Required: Prepare a monthly operating budget for the first quarter with the following schedules: 1. Sales budget January February March Total Units 10,000 10,500 13,900 34,400 Unit selling price 110 110 110 110 Sales 1,100,000 1,155,000 1,529,000 3,784,000 Feedback Check My Work 2. Production budget January February March Total 2. Production budget January February March Total Unit sales 10,000 10,500 13,900 34,400 Desired ending inventory 2,100 2,780 3,200 3,200 Total needed 12,100 13,280 17,100 37,600 Less: Beginning inventory 900 2,100 2,780 900 Units produced 11,200 11,180 14,320 36,700 Feedback Check My Work See Cornerstone 8.2. 3. Direct materials purchases budget January February March Total Part K298 Part C30 Part K298 Part C30 Part K298 Part C30 Part K298 Part C30 Units produced 11,200 11,200 11,1807 11,180 14,320 14,320 36,700 36,700 Dir. mat. per unit 2 3 2 3 3 2 3 Production 22,400 33,600 22,360 33,540 28,640 42,960 73,400 110,100 needs Desired EI 6,708 10,062 8,592 12,888 Total needed 29,108 43,662 30,952 46,428 3. Direct materials purchases budget January February March Total Part K298 Part C30 Part K298 Part C30 Part K298 Part C30 Part K298 Part C30 Units produced 11,200 11,200 11,180 11,180 14,320 14,320 36,700 36,700 Dir. mat. per unit 2 3 2 3 2 3 2 3 Production 22,400 33,600 22,360 33,540 28,640 42,960 73,400 110,100 needs Desired EI 6,708 10,062 8,592 12,888 Total needed 29,108 43,662 30,952 46,428 Less: BI Dir. mat. to purchase Cost per unit 4 Total purchase cost Operating Budget, Comprehensive Analysis Ponderosa, Inc., produces wiring harness assemblies used in the production of semi-trailer trucks. The wiring harness assemblies are sold to various truck manufacturers around the world. Projected sales in units for the coming five months are given below. January 10,000 February 10,500 March 13,900 April 16,000 May 18,500 The following data pertain to production policies and manufacturing specifications followed by Ponderosa: a. Finished goods inventory on January 1 is 900 units. The desired ending inventory for each month is 20 percent of the next month's sales. b. The data on materials used are as follows: Direct Material Per-Unit Usage Unit Cost Part #K298 2. $4 Part #C30 7 Inventory policy dictates that sufficient materials be on hand at the beginning of the month to satisfy 30 percent of the next month's production needs. This is exactly the amount of material on hand on January 1. C. The direct labor used per unit of output is one and one-half hours. The average direct labor cost per hour is $20. d. Overhead each month is estimated using a flexible budget formula. (Activity is measured in direct labor hours.) Fixed Cost Variable Cost Component Component Supplies $1.00 Power 0.20 Maintenance 12,600 1.10 14,000 Supervision Depreciation 45,000 Taxes 4,300 86,000 Other 1.60