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:

1. 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.
2. 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.
3. The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25.
4. 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		0.40
   Supervision	16,000
   Depreciation	200,000
   Taxes	12,000
   Other	80,000		0.50

5. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Note: Activity is measured in units sold.)

   	Fixed Costs ($)		Variable Costs ($)
   Salaries	50,000
   Commissions			2.00
   Depreciation	40,000
   Shipping			1.00
   Other	20,000		0.60

6. The unit selling price of the subassembly is $205.
7. 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.

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.)

a. Schedule 1: Sales Budget. Do not include a multiplication symbol as part of your answer.

1. 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.

   Allison Manufacturing
   Direct Labor Budget
   For the Quarter Ended March 31
   	January	February	March	Total
   Units to be produced
   Direct labor time per unit (hours)
   Total hours needed
   Cost per hour	$	$	$	$
   Total cost	$	$	$	$

   Feedback

   Incorrect

   e. Schedule 5: Overhead Budget. If required, round amounts to the nearest cent. Do not include a multiplication symbol as part of your answer.

   Allison Manufacturing
   Overhead Budget
   For the Quarter Ended March 31
   	January	February	March	Total
   Budgeted direct labor hours
   Variable overhead rate	$	$	$	$
   Budgeted variable overhead	$	$	$	$
   Budgeted fixed overhead
   Total overhead	$	$	$	$

   Feedback

   Incorrect

   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
   	January	February	March	Total
   Planned sales
   Variable selling and administrative expenses per unit	$	$	$	$
   Total variable expense	$	$	$	$
   Fixed selling and administrative expenses:
   Salaries	$	$	$	$
   Depreciation
   Other
   Total fixed 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
   Unit cost computation:
   Direct materials:
   Metal	$
   Components		$
   Direct labor
   Overhead:
   Variable
   Fixed
   Total unit cost		$
   Finished goods inventory		$

   Feedback

   Incorrect

   h. Schedule 8: Cost of Goods Sold Budget.

   Allison Manufacturing
   Cost of Goods Sold Budget
   For the Quarter Ended March 31
   Direct materials
   Metal	$
   Components		$
   Direct labor used
   Overhead
   Budgeted manufacturing costs		$
   Add: Beginning finished goods
   Cost of goods available for sale		$
   Less: Ending finished goods
   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
   Sales	$
   Less: Cost of goods sold
   Gross margin	$
   Less: Selling and administrative expenses
   Income before taxes	$

   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
   	January	February	March	Total
   Beginning balance	$	$	$	$
   Cash receipts
   Cash available	$	$	$	$
   Less Disbursements:
   Purchases	$	$	$	$
   Direct labor
   Overhead
   Selling & admin.
   Total	$	$	$	$
   Tentative ending balance	$	$	$	$
   Borrowed/repaid
   Interest paid
   Ending balance	$	$	$	$