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 February March April May 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 $166.06. The desired ending inventory for each month is 80% of the next month's sales. 40,000 50,000 60,000 60,000 62,000 b. The data on materials used are as follows Direct Material Per-Unit Usage DM Unit Cost ($) Metal 10 lbs. Inventory policy dictates that sufficent matenals 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 matenal 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.) Variable-Cost Component () Component (s) Supplies 1.00 Power 0.50 Fixed-Cost Supplies 1.00 0.50 0.40 Power Depreciation Taxes Other 30,000 16,000 200,000 12,000 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(s) Salaries Commissions Depreciation 50,000 2.00 40,000 1.00 Other 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 20,000 0.60 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 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 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 h. Schedule 8: Cost of Goods Sold Budget. Allison Manufacturing Cost of Goods Sold Budget arc 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 Sales Less: Cost of goods sold Gross margin Less: Selling and administrative expenses 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 "O. Use a minus sign to enter a negative amount. Allison Manufacturing Cash Budget For the Quarter Ended March 31 anuary February March Total Beginning balance Cash receipts Cash available Less Disbursements Purchases Direct labor Overhead Selling & admin. 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 anuary February March Total Beginning balance Cash receipts Cash available Less Disbursements Purchases Direct labor Selling & admin. Total Tentative ending balaceXXX Borrowed/repaid Interest paid Ending balance 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 February March April May 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 $166.06. The desired ending inventory for each month is 80% of the next month's sales. 40,000 50,000 60,000 60,000 62,000 b. The data on materials used are as follows Direct Material Per-Unit Usage DM Unit Cost ($) Metal 10 lbs. Inventory policy dictates that sufficent matenals 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 matenal 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.) Variable-Cost Component () Component (s) Supplies 1.00 Power 0.50 Fixed-Cost Supplies 1.00 0.50 0.40 Power Depreciation Taxes Other 30,000 16,000 200,000 12,000 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(s) Salaries Commissions Depreciation 50,000 2.00 40,000 1.00 Other 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 20,000 0.60 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 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 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 h. Schedule 8: Cost of Goods Sold Budget. Allison Manufacturing Cost of Goods Sold Budget arc 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 Sales Less: Cost of goods sold Gross margin Less: Selling and administrative expenses 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 "O. Use a minus sign to enter a negative amount. Allison Manufacturing Cash Budget For the Quarter Ended March 31 anuary February March Total Beginning balance Cash receipts Cash available Less Disbursements Purchases Direct labor Overhead Selling & admin. 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 anuary February March Total Beginning balance Cash receipts Cash available Less Disbursements Purchases Direct labor Selling & admin. Total Tentative ending balaceXXX Borrowed/repaid Interest paid Ending balance