Operating Budget, Comprehensive Analysis Objective 1, 2, 3, 4

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

3. 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.
4. The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25.
5. 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

6. 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

7. The unit selling price of the subassembly is $205.
8. 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:

2. 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.)
   1. Sales budget
   2. Production budget
   3. Direct materials purchases budget
   4. Direct labor budget
   5. Overhead budget
   6. Selling and administrative expenses budget
   7. Ending finished goods inventory budget
   8. Cost of goods sold budget
   9. Budgeted income statement

Answer

Check Figure: Budgeted income before taxes = $4,971,260

10. Cash budget

Answer

Check Figure: Cash budget ending balance (March) = $2,686,004

Operating Budget, Comprehensive Analysis Objective 1, 2, 3,4 Required Allison Manufacturing produces a subassembly used in the production of jet aircraft engines. The assembly is sold to engne manufacturers and aircraft maintenance facilities. Projected sales in units for the coming 5 monthe follow 2. 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.) 40,000 50,000 60,000 60,000 62,000 March 1. Sales budget 2. Production budget 3. Direct materials purchases budget 4. Direct labor budget 5. Overhead budget 6. Selling and administrative expenses budget 7. Ending finished goods inventory budget 8. Cost of goods sold budget 9. Budgeted income statement The following data pertain to production policies and manufacturing specifications followed by Allison Maufacturing: 1. Finished goods inventory on Jauary 1 is 32,000 umits, each coeting $166.06. The deired ending inventory for each month is 80% ofthe next months sales. 2. The data ce materiale used are a folloWE: Direct Material Per-Unit Usage DM Unit Cost 10 lbs 3. Inventory policy dictates that sum cert materials be month's production needs. This is exactly the amount of material on hand on December 31 of the prior year and at the end of the month to produce 50% of the next Answer 4. The direct labor used per unit of output is 3 hours. The average direct labor cost per bour is $1425 5. Overhead each month is estimated using a flexible budget formala. (Note: Activity is measured in direct labor Check Figure: Budgeted income before taxes $4,971,260 10. Cash budget $1.00 0.50 040 Answer 16.000 200,000 12,000 Supervizion Check Figure: Cash budget ending balance (March)- $2,686,004 Other 0.50 6. Montly selling and administrative expenses are also estimated using a flexible badgeting foemla. (Vote: Activity is measured in units sold.) Fixed Costs Variable Costs 50,000 $2.00 40,000 1.00 0.60 20,000 7. The unit selling price of the subassembly is $205 8. 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, sufficieat 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 Jamuary