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.

Question:

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	$80
Components	30	$110
Direct labor		42.75
Overhead:
Variable		?
Fixed		?
Total unit cost		$?
Finished goods inventory ?

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		7,096,500
Overhead		2,209,200
Budgeted manufacturing costs		$?
Add: Beginning finished goods		5,313,920
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	$30,750,000
Less: Cost of goods sold	?
Gross margin	$?
Less: Selling and administrative expenses	870,000
Income before taxes	$?

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 March Total Beginning balance $ 400,000 400,000 8,200,000 50,000 10,250,000 Cash receipts 12,300,000 30,750,000 Cash available $ 8,600,000 $10,300,000 $ $ 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 483,600 555,600 570,000 1,609,200 Selling & admin. 214,000 250,000 286,000 750,000 Total $ 8,579,600 $ 9,775,100 $ 10,109,000 $ 28,463,700 Tentative ending balance $ 20,400 $ x $ 2,686,300 524,900 -29,600 Borrowed/repaid 29,600 Interest paid Ending balance 50,000