Question
Operating Budget, Comprehensive Analysis Allison Manufacturing produces a subassembly used in the production of jet aircraft engines. The assembly is sold to engine manufacturers and
Operating Budget, Comprehensive Analysis
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 5 months follow:
Month | Sales in Units |
---|---|
January | 40,000 |
February | 50,000 |
March | 60,000 |
April | 60,000 |
May | 62,000 |
The following data pertain to production policies and manufacturing specifications followed by Allison Manufacturing:
Finished goods inventory on January 1 is 32,000 units, each costing $166.06. The desired ending inventory for each month is 80% of the next month's sales.
The data on materials used are as follows:
Direct Material | Per-Unit Usage | DM Unit Cost ($) |
---|---|---|
Metal | 10 lbs. | 8 |
Components | 6 | 5 |
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.
The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25.
Overhead each month is estimated using a flexible budget formula. (Note: Activity is measured in direct labor hours.)
Line Item Description | Fixed-Cost Component ($) | Variable-Cost Component ($) |
---|---|---|
Supplies | 1.00 | |
Power | 0.50 | |
Maintenance | 30,000 | 0.40 |
Supervision | 16,000 | |
Depreciation | 200,000 | |
Taxes | 12,000 | |
Other | 80,000 | 0.50 |
Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Note: Activity is measured in units sold.)
Line Item Description | Fixed Costs ($) | Variable Costs ($) |
---|---|---|
Salaries | 50,000 | |
Commissions | 2.00 | |
Depreciation | 40,000 | |
Shipping | 1.00 | |
Other | 20,000 | 0.60 |
The unit selling price of the subassembly is $205.
All sales and purchases are for cash. The cash balance on January 1 equals $400,000. The firm requires a minimum ending balance of $50,000. 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 following month, as is the interest due. The interest rate is 12% per annum. No money is owed at the beginning of January.
Required:
1. Prepare a monthly operating budget for the first quarter with the following schedules. (Note: Assume that there is no change in work-in-process inventories.)
Question Content Area
a. Schedule 1: Sales Budget. Do not include a multiplication symbol as part of your answer.
Line Item Description | January | February | March | Total |
---|---|---|---|---|
Units | Units | Units | Units | Units |
Selling price | $Selling price | $Selling price | $Selling price | $Selling price |
Sales | $Sales | $Sales | $Sales | $Sales |
b. Schedule 2: Production Budget.
Line Item Description | January | February | March | Total |
---|---|---|---|---|
Sales | Sales | Sales | Sales | Sales |
Desired ending inventory | ||||
Total needs | ||||
Less: Beginning inventory | ||||
Units to be produced |
c. Schedule 3: Direct Materials Purchases Budget. Do not include a multiplication symbol as part of your answer.
Line Item Description | January Metal | January Components | February Metal | February Components | March Metal | March Components | Total Metal | Total Components |
---|---|---|---|---|---|---|---|---|
Units to be produced | ||||||||
Direct materials per unit | ||||||||
Production needs | ||||||||
Desired ending inventory | ||||||||
Total needs | ||||||||
Less: Beginning inventory | ||||||||
Direct materials to be purchased | ||||||||
Cost per unit | ||||||||
Total cost |
d. Schedule 4: Direct Labor Budget. If required, round amounts to the nearest cent. Do not include a multiplication symbol as part of your answer.
Line Item Description | January | February | March | Total |
---|---|---|---|---|
Units to be produced | ||||
Direct labor time per unit (hours) | ||||
Total hours needed | ||||
Cost per hour | ||||
Total cost |
e. Schedule 5: Overhead Budget. If required, round amounts to the nearest cent. Do not include a multiplication symbol as part of your answer.
Line Item Description | January | February | March | Total |
---|---|---|---|---|
Budgeted direct labor hours | ||||
Variable overhead rate | ||||
Budgeted variable overhead | ||||
Budgeted fixed overhead | ||||
Total overhead | $Total overhead |
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