Operating Budget, Comprehensive Analysis

Ponderosa, Inc., produces wiring harness assemblies used in the production of semi-trailer trucks. The wiring harness assemblies are sold to various truck manufacturers around the world. Projected sales in units for the coming five months are given below.

January	10,000
February	10,500
March	13,000
April	16,000
May	18,500

The following data pertain to production policies and manufacturing specifications followed by Ponderosa:

1. Finished goods inventory on January 1 is 900 units. The desired ending inventory for each month is 20 percent of the next month's sales.
2. The data on materials used are as follows:

Direct Material	Per-Unit Usage	Unit Cost
Part #K298	2	$4
Part #C30	3	7

Inventory policy dictates that sufficient materials be on hand at the beginning of the month to satisfy 30 percent of the next month's production needs. This is exactly the amount of material on hand on January 1.

1. The direct labor used per unit of output is one and one-half hours. The average direct labor cost per hour is $20.
2. Overhead each month is estimated using a flexible budget formula. (Activity is measured in direct labor hours.)

	Fixed Cost Component	Variable Cost Component
Supplies	$	$1.00
Power		0.20
Maintenance	12,600	1.10
Supervision	14,000
Depreciation	45,000
Taxes	4,300
Other	86,000	1.60

1. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Activity is measured in units sold.)

	Fixed Costs	Variable Costs
Salaries	$ 88,500
Commissions		$1.40
Depreciation	25,000
Shipping		3.60
Other	137,000	1.60

1. The unit selling price of the wiring harness assembly is $110.
2. In February, the company plans to purchase land for future expansion. The land costs $68,000.
3. All sales and purchases are for cash. The cash balance on January 1 equals $62,900. The firm wants to have an ending cash balance of at least $25,000. If a cash shortage develops, sufficient cash is borrowed to cover the shortage and provide the desired ending balance. Any cash borrowed must be borrowed in $1,000 increments and is repaid the following month, as is the interest due. The interest rate is 12 percent per annum.

Require

make a monthly operating budget for the first quarter with the following schedules:

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1. Sales budget

	January	February	March	Total
Units
Unit selling price
Sales

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See Cornerstone 8.1.

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2. Production budget

	January	February	March	Total
Unit sales
Desired ending inventory
Total needed
Less: Beginning inventory
Units produced

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See Cornerstone 8.2.

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3. Direct materials purchases budget

	January	February	March	Total
	Part K298	Part C30	Part K298	Part C30	Part K298	Part C30	Part K298	Part C30
Units produced
Dir. mat. per unit
Production needs
Desired EI
Total needed
Less: BI
Dir. mat. to purchase
Cost per unit
Total purchase cost

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See Cornerstone 8.3.

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4. Direct labor budget. Round your answers to two decimal places, if required.

	January	February	March	Total
Units to be produced
Direct labor time per unit (hrs.)
Total hours needed
Wages per hour
Total direct labor cost

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See Cornerstone 8.4.

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5. Overhead budget. Round your answers to two decimal places, if required.

	January	February	March	Total
Budgeted direct labor hours
Variable overhead rate
Budgeted var. overhead
Budgeted fixed overhead
Total overhead cost

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See Cornerstone 8.5.

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6. Selling and administrative expense budget. Round your answers to the nearest cent, if required.

	January	February	March	Total
Planned sales
Variable selling & administrative expense per unit
Total variable expense
Fixed selling & administrative expense:
Salaries
Depreciation
Other
Total fixed expenses
Total selling & administrative expenses

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See Cornerstone 8.9.

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7. Ending finished goods inventory budget. Round intermediate calculations to the nearest cent. Round your answers to the nearest cent, if required.

Unit cost computation:
Direct materials:
Part K298
Part C30
Direct labor
Overhead:
Variable
Fixed
Total unit cost
Number of units
Finished goods

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See Cornerstone 8.6.

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8. Cost of goods sold budget

Direct materials used
Part K298
Part C30
Direct labor used
Overhead
Budgeted manufacturing costs
Add: Beginning finished goods
Goods available for sale
Less: Ending finished goods
Budgeted cost of goods sold

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See Cornerstone 8.7.

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9. Budgeted income statement (ignore income taxes)

Sales
Less: Cost of goods sold
Gross margin
Less: Selling and administrative expense
Income before income taxes

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See Cornerstone 8.10.

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10. Cash budget Enter a negative balance as a negative amount, and if an amount is zero enter "0".

	January	February	March	Total
Beginning balance
Cash receipts
Total cash available
Disbursements:
Purchases
DL payroll
Overhead
Marketing & admin
Land
Total disbursements
Ending balance
Financing:
Borrowed/repaid
Interest paid
Ending cash balance