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.
f. Schedule 6: Selling and Administrative Expenses 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 |
---|---|---|---|---|
Planned sales | Planned sales | Planned sales | Planned sales | Planned sales |
Variable selling and administrative expenses per unit | $Variable selling and administrative expenses per unit | $Variable selling and administrative expenses per unit | $Variable selling and administrative expenses per unit | $Variable selling and administrative expenses per unit |
Total variable expense | $Total variable expense | $Total variable expense | $Total variable expense | $Total variable expense |
Fixed selling and administrative expenses: | ||||
Salaries | $Salaries | $Salaries | $Salaries | $Salaries |
Depreciation | Depreciation | Depreciation | Depreciation | Depreciation |
Other | Other | Other | Other | Other |
Total fixed expenses | $Total fixed expenses | $Total fixed expenses | $Total fixed expenses | $Total fixed expenses |
Total selling and administrative expenses | $Total selling and administrative expenses | $Total selling and administrative expenses | $Total selling and administrative expenses | $Total selling and administrative expenses |
g. Schedule 7: Ending Finished Goods Inventory Budget. If required, round amounts to the nearest cent.
Line Item Description | Amount | Amount |
---|---|---|
Unit cost computation: | ||
Direct materials: | ||
Metal | $Metal | |
Components | Components | $Components |
Direct labor | Direct labor | |
Overhead: | ||
Variable | Variable | |
Fixed | Fixed | |
Total unit cost | $Total unit cost | |
Finished goods inventory | $Finished goods inventory |
h. Schedule 8: Cost of Goods Sold Budget.
Line Item Description | Amount | Amount |
---|---|---|
Direct materials | ||
Metal | $Metal | |
Components | Components | $Components |
Direct labor used | Direct labor used | |
Overhead | Overhead | |
Budgeted manufacturing costs | $Budgeted manufacturing costs | |
Add: Beginning finished goods | Add: Beginning finished goods | |
Cost of goods available for sale | $Cost of goods available for sale | |
Less: Ending finished goods | Less: Ending finished goods | |
Budgeted cost of goods sold | $Budgeted cost of goods sold |
i. Schedule 9: Budgeted Income Statement. Use a minus sign to indicate a negative amount.
Line Item Description | Amount |
---|---|
Sales | |
Less: Cost of goods sold | |
Gross margin | |
Less: Selling and administrative expenses | |
Operating income |
j. Schedule 10: Cash Budget. If an amount is zero, enter "0". Use a minus sign to enter a negative amount.
Line Item Description | January | February | March | Total |
---|---|---|---|---|
Beginning balance | $Beginning balance | $Beginning balance | $Beginning balance | $Beginning balance |
Cash receipts | Cash receipts | Cash receipts | Cash receipts | Cash receipts |
Cash available | $Cash available | $Cash available | $Cash available | $Cash available |
Less Disbursements: | ||||
Purchases | $Purchases | $Purchases | $Purchases | $Purchases |
Direct labor | Direct labor | Direct labor | Direct labor | Direct labor |
Overhead | Overhead | Overhead | Overhead | Overhead |
Selling and admin. | Selling and admin. | Selling and admin. | Selling and admin. | Selling and admin. |
Total | $Total | $Total | $Total | $Total |
Tentative ending balance | $Tentative ending balance | $Tentative ending balance | $Tentative ending balance | $Tentative ending balance |
Borrowed/repaid | Borrowed/repaid | Borrowed/repaid | Borrowed/repaid | Borrowed/repaid |
Interest paid | Interest paid | Interest paid | ||
Ending balance | $Ending balance | $Ending balance | $Ending balance | $Ending balance |
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