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: 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: a. Finished goods inventory on January 1 is 32,000 units, each costing $166.06. The desired ending inventory for each month is 80% of the next month's sales. b. The data on materials used are as follows: Direct Material Per-Unit Usage DM Unit Cost ($) Metal 10 lbs. Components 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. C. The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25. d. Overhead each month is estimated using a flexible budget formula. (Note: Activity is measured in direct labor hours.) Fixed-Cost Component ($) Variable-Cost Component ($) Supplies 1.00 Power 0.50 Maintenance 30,000 Supervision 16,000 Depreciation 200,000 Taxes 12,000 Other 80,000 0.50 e. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Note: Activity is measured in units sold.) Fixed Variable Costs ($) Costs ($) Salaries 50,000 Commissions 2.00 Depreciation 40,000 Shipping 1.00 Other 20,000 0.60 f. The unit selling price of the subassembly is $205. g. 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 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% per annum. No money is owed at the beginning of January. h. Schedule 8: Cost of Goods Sold Budget. Allison Manufacturing Cost of Goods Sold Budget For the Quarter Ended March 31 Direct materials Metal $ x 13,824,000 5,184,000 Components X $ 19,008,000 X Direct labor used 7,096,500 Overhead 2,209,500 Budgeted manufacturing costs 2,209,200 Add: Beginning finished goods 28,313,700 Cost of goods available for sale 513,700 X Less: Ending finished goods 7,970,805 Budgeted cost of goods sold 25,656,815 X 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 Sales $ 30,750,000 25,656,816 Less: Cost of goods sold Gross margin 5,093,185 Less: Selling and administrative expenses 870,000 Income before taxes 4,223,185 X j. Schedule 10: Cash Budget. If an amount is zero, enter "O". Use a minus sign to enter a negative amount. Allison Manufacturing Cash Budget For the Quarter Ended March 31 January February 400,000 50,000 March Total Beginning balance 324,900 X $ 400,000 Cash receipts 8,200,000 10,250,000 12,300,000 30,750,000 Cash available 8,600,000 10,300,000 $12,624,900 X $ 31,150,000 Less Disbursements: Purchases 5,830,000 6,490,000 6,688,000 19,008,000 Direct labor 2,052,000 2,479,500 2,565,000 7,096,500 Overhead 683,600 755,600 770,000 X 125 2,209,200 Selling & admin. 214,000 250,000 286,000 750,000 Total $ 8,779,600 x $ 9,975,100 x $10,309,000 X $ 29,063,700 X Tentative ending balance $ -179,600 x $ 324,900 x $ 2,315,900 X $ 2,086,300 Borrowed/repaid 229,600 -229,600 -229,600 Interest paid -4,592 -4,592 Ending balance 50,000 324,900 % 2,081,708 2,081,708 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: 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: a. Finished goods inventory on January 1 is 32,000 units, each costing $166.06. The desired ending inventory for each month is 80% of the next month's sales. b. The data on materials used are as follows: Direct Material Per-Unit Usage DM Unit Cost ($) Metal 10 lbs. Components 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. C. The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25. d. Overhead each month is estimated using a flexible budget formula. (Note: Activity is measured in direct labor hours.) Fixed-Cost Component ($) Variable-Cost Component ($) Supplies 1.00 Power 0.50 Maintenance 30,000 Supervision 16,000 Depreciation 200,000 Taxes 12,000 Other 80,000 0.50 e. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Note: Activity is measured in units sold.) Fixed Variable Costs ($) Costs ($) Salaries 50,000 Commissions 2.00 Depreciation 40,000 Shipping 1.00 Other 20,000 0.60 f. The unit selling price of the subassembly is $205. g. 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 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% per annum. No money is owed at the beginning of January. h. Schedule 8: Cost of Goods Sold Budget. Allison Manufacturing Cost of Goods Sold Budget For the Quarter Ended March 31 Direct materials Metal $ x 13,824,000 5,184,000 Components X $ 19,008,000 X Direct labor used 7,096,500 Overhead 2,209,500 Budgeted manufacturing costs 2,209,200 Add: Beginning finished goods 28,313,700 Cost of goods available for sale 513,700 X Less: Ending finished goods 7,970,805 Budgeted cost of goods sold 25,656,815 X 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 Sales $ 30,750,000 25,656,816 Less: Cost of goods sold Gross margin 5,093,185 Less: Selling and administrative expenses 870,000 Income before taxes 4,223,185 X j. Schedule 10: Cash Budget. If an amount is zero, enter "O". Use a minus sign to enter a negative amount. Allison Manufacturing Cash Budget For the Quarter Ended March 31 January February 400,000 50,000 March Total Beginning balance 324,900 X $ 400,000 Cash receipts 8,200,000 10,250,000 12,300,000 30,750,000 Cash available 8,600,000 10,300,000 $12,624,900 X $ 31,150,000 Less Disbursements: Purchases 5,830,000 6,490,000 6,688,000 19,008,000 Direct labor 2,052,000 2,479,500 2,565,000 7,096,500 Overhead 683,600 755,600 770,000 X 125 2,209,200 Selling & admin. 214,000 250,000 286,000 750,000 Total $ 8,779,600 x $ 9,975,100 x $10,309,000 X $ 29,063,700 X Tentative ending balance $ -179,600 x $ 324,900 x $ 2,315,900 X $ 2,086,300 Borrowed/repaid 229,600 -229,600 -229,600 Interest paid -4,592 -4,592 Ending balance 50,000 324,900 % 2,081,708 2,081,708