Operating Budget, Comprehensive Analysis

Hopewell Manufacturing produces dashboards used in the production of automobiles. The dashboard assembly is sold to a nearby automobile manufacturing plant. Projected sales in units for the coming five months follow:

January80,000February90,000March95,000April96,000May92,000The following data pertain to production policies and manufacturing specifications followed by Hopewell Manufacturing:

1. Finished goods inventory on January 1 is 38,000 units, each costing $274.69. The desired ending inventory for each month is 75 percent of the next month's sales.
2. The data on materials used are as follows:
4. Direct MaterialsPer-Unit Usage (kilograms)Unit Cost ($)Plastix1216Components49
5. Inventory policy dictates that sufficient materials be on hand at the beginning of the month to produce 40 percent of that month's estimated sales. This is exactly the amount of materials on hand on January 1.
6. The direct labour used per unit of output is two hours. The average direct labour cost per hour is $18.50.
7. Overhead each month is estimated using a flexible budget formula. (Note:Activity is measured in direct labour hours.)
9. Fixed-Cost
10. Component ($)Variable-Cost
11. Component ($)Supplies?1.20Power?0.70Maintenance50,0000.30Supervision24,000?Depreciation230,000?Taxes14,000?Other90,0000.60
12. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Note:Activity is measured in units sold.)
14. Fixed
15. Costs ($)Variable
16. Costs ($)Salaries70,000?Commissions?1.60Depreciation45,000?Shipping?0.75Other10,0000.20
17. The unit selling price of the dashboard subassembly is $298.
18. All sales and purchases are for cash. The cash balance on January 1 is $4,600,000. The firm requires a minimum ending balance of $150,000. 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 month, as is the interest due (cash borrowed at the end of the month is repaid at the end of the following month). The interest rate is 6 percent per annum. No money is owed at the beginning of January.

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