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. 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. c. The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25. d. Overhead each month is estimated using a flexible budget formula. (Note: Activity is measured in direct labor hours.) Fixed-Cost Variable-Cost Component ($) Component ($) Supplies 1.00 Power 0.50 Maintenance 30,000 0.40 Supervision 16,000 Depreciation 200,000 Taxes 12,000 Other 80,000 0.50 e. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Note: Activity is measured in units sold.) Fixed Variable Costs ($) 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. 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.) Allison Manufacturing Production Budget For the Quarter Ended March 31 January February March Total Sales 10,000 50,000 60,000 150,000 Desired ending inventory 40,000 48,000 48,000 136,000 X Total needs 80,000 98,000 108,000 286,000 x Less: Beginning inventory 32,000 40,000 48.000 120,000 X Units to be produced 18,000 53,000 60,000 166,000 Feedback C. Schedule 3: Direct Materials Purchases Budget. Do not include a multiplication symbol as part of your answer. Allison Manufacturing Direct Materials Purchases Budget For the Quarter Ended March 31 January Metal January Components February Metal February Components March Metal March Components Total Metal Total Components Units to be produced 10,000 X 40,000 X 50,000 50,000 60,000 60,000 150,000 X 150,000 X 10 6 Direct materials per unit 10 6 10 10 Production needs 400,000 240,000 X 500,000 300,000 X 600,000 360,000 1,500,000 X 900,000 X Desired ending inventory 400,000 240,000 X 480,000 X 288,000 X 180,000 X 288,000 X 15,000,000 X 5,400,000 X Total needs 800,000 X 480,000 X 980,000 583,000 X 1,080,000 X 648,000 16,500,000 X 6,300,000 x 320,000 X Less: Beginning inventory 192,000 X 400,000 240,000 180,000 X 288,000 1,200,000 X 720,000 Direct materials to be purchased 180,000 X 288,000 X 580,000 348,000 X 600,000 X 360,000 15,300,000 X 5,580,000 x Cost per unit 8 5 $ 8 $ 5 8 5 8 5 Total cost 3,840,000 X $ 1,440,000 x $ 4,640,000 X $ 1,740,000 4,800,000 X X $ 1,800,000 $ 122,400,000 X $ 27,900,000 X
