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

1. 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.
2. The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25.
3. 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

1. 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

1. The unit selling price of the subassembly is $205.
2. 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.

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.)

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

	January	February	March	Total
Budgeted direct labor hours	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Variable overhead rate	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Budgeted variable overhead	$fill in the blank	$fill in the blank	$$fill in the blank	$fill in the blank
Budgeted fixed overhead	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Total overhead	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank

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.

	January	February	March	Total
Planned sales	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Variable selling and administrative expenses per unit	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Total variable expense	$fill in the blank	$fill in the blank	$$fill in the blank	$fill in the blank
Fixed selling and administrative expenses:
Salaries	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Depreciation	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Other	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Total fixed expenses	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Total selling and administrative expenses	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank

g. Schedule 7: Ending Finished Goods Inventory Budget. If required, round amounts to the nearest cent.

Unit cost computation:
Direct materials:
Metal	$fill in the blank
Components	$fill in the blank	$fill in the blank
Direct labor		$fill in the blank
Overhead:
Variable		$fill in the blank
Fixed		$fill in the blank
Total unit cost		$fill in the blank
Finished goods inventory		$fill in the blank

h. Schedule 8: Cost of Goods Sold Budget.

Direct materials
Metal	$fill in the blank
Components	$fill in the blank	$fill in the blank
Direct labor used		$fill in the blank
Overhead		$fill in the blank
Budgeted manufacturing costs		$fill in the blank
Add: Beginning finished goods		$fill in the blank
Cost of goods available for sale		$fill in the blank
Less: Ending finished goods		$fill in the blank
Budgeted cost of goods sold		$fill in the blank

i. Schedule 9: Budgeted Income Statement. Use a minus sign to indicate a negative amount.

Sales	$fill in the blank
Less: Cost of goods sold	$fill in the blank
Gross margin	$fill in the blank
Less: Selling and administrative expenses	$fill in the blank
Income before taxes	$fill in the blank

j. Schedule 10: Cash Budget. If an amount is zero, enter "0". Use a minus sign to enter a negative amount.

	January	February	March	Total
Beginning balance	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Cash receipts	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Cash available	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Less Disbursements:
Purchases	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Direct labor	$fill in the blank	fill in the blank 65b0c2065f9d04f_18	fill in the blank 65b0c2065f9d04f_19	fill in the blank 65b0c2065f9d04f_20
Overhead	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Selling & admin.	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Total	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Tentative ending balance	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Borrowed/repaid	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank
Interest paid		fill in the blank		$fill in the blank
Ending balance	$fill in the blank	$fill in the blank	$fill in the blank	$fill in the blank