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.

Allison Manufacturing Selling and Administrative Expenses Budget For the Quarter Ended March 31

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.

Allison Manufacturing Ending Finished Goods Inventory Budget For the Quarter Ended March 31

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.

Allison Manufacturing Cost of Goods Sold Budget For the Quarter Ended March 31

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.

Allison Manufacturing Budgeted Income Statement For the Quarter Ended March 31

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.

Allison Manufacturing Cash Budget For the Quarter Ended March 31

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