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	10,600
March	13,500
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 months 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 months production needs. This is exactly the amount of material on hand on January 1.

3. The direct labor used per unit of output is one and one-half hours. The average direct labor cost per hour is $20.
4. 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

5. 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

6. The unit selling price of the wiring harness assembly is $110.
7. In February, the company plans to purchase land for future expansion. The land costs $68,000.
8. All sales and purchases are for cash. The cash balance on January 1 equals $62,700. 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.

Required:

Prepare a monthly operating budget for the first quarter with the following schedules: Problems 7-10

See Cornerstone 8.9.

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	$

Feedback

See Cornerstone 8.6.

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		$

Feedback

See Cornerstone 8.7.

9. Budgeted income statement (ignore income taxes)

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

Feedback

See Cornerstone 8.10.

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	$	$	$	$

1. Sales budget January 10,000 February 10,600 March 13,500 Total 34,100 Units Unit selling price $110 110 110 110 Sales $ 1,100,000 $1,166,000 $ 1,485,000 $3,750,000 Feedback Check My Work See Cornerstone 8.1. 2. Production budget January February March Total Unit sales Desired ending inventory | 3 Total needed 10,000 2,120 12,120 900 11,220 10,600 2,700 13,300 2,120 11,180 13,500 3,200 16,700 2,700 14,000 34,100 ,200 37,300 900 36,400 Less: Beginning inventory Units produced Feedback 3. Direct materials purchases budget January February March Total Part K298 Part K298 Part C30 Part K298 Part C30 Units produced Dir. mat. per unit Part C30 11,220 3 11,220 2 36,400 Part 030 11,180 3 11,180 2 Part K298 14,000 2 14,000 3 36,400 2 3 Production 22,440 33,660 22,360 33,540 28,000 42,000 72,800 109,200 needs Desired EI Total needed 6,708 29,148 6,732 10,062 43,722 10,098 8,400 30,760 6,708 12,600 46,140 10,062 9,900 37,900 8,400 14,850 56,850 12,600 9,900 82,700 6,732 14,850 124,050 10,098 Less: BI Dir. mat. to purchase 22,416 33,624 24,052 Correct 44,250 75,968 113,952 Cost per unit $ 4 $ 7 $ 4 $ 7 $ 4 $ 7 $ 4 $ 7 Total purchase cost $ 89,664 $ 235,368 $ 96,208 $ 252,546 $ 118,000 $309,750 $ 303,872 $ 797,664 Feedback Check My Work | 4. Direct labor budget. Round your answers to two decimal places, if required. January February Units to be produced 11,220 11,180 Direct labor time per unit 1.5 1.5 (hrs.) Total hours needed 16,830 16,770 Wages per hour 20 $ 20 Total direct labor cost $ 336,600 $ 335,400 March 14,000 1.5 21,000 20 420,000 Total 36,400 1.5 54,600 20 1,092,000 $ $ $ $ Feedback 5. Overhead budget. Round your answers to two decimal places, If required. January February March Total Budgeted direct 16,830 16,770 21,000 54,600 labor hours Variable overhead rate 3.9 3.9 3.9 3.9 Budgeted var. $ 65,637 $ 65,403 $ 81,900 $ 212,940 overhead Budgeted fixed overhead 161,900 161,900 161,900 485,700 Total overhead cost $ 227,537 $ 227,303 $243,800 $698,640 6. Selling and administrative expense budget. Round your answers to the nearest cent, If required. January February March Total Planned sales 10,000 10,600 13,500 34,100 Variable selling & administrative expense per $ 6.6 $ 6.6 $ 6.6 $ 6.6 unit Total variable expense $ 66,000 $ 69,960 $ 89,100 $225,060 Fixed selling & administrative expense: Salaries Depreciation Other 88,500 25,000 137,000~ $ 250,500 316,500 $ 88,500 25,000 137,000 $250,500 320,460 $ 88,500 25,000 137,000 $250,500 339,600 $265,500 75,000 411,000 $751,500 976,560 Total fixed expenses Total selling & administrative expenses Feedback Check My Work 1. Sales budget January 10,000 February 10,600 March 13,500 Total 34,100 Units Unit selling price $110 110 110 110 Sales $ 1,100,000 $1,166,000 $ 1,485,000 $3,750,000 Feedback Check My Work See Cornerstone 8.1. 2. Production budget January February March Total Unit sales Desired ending inventory | 3 Total needed 10,000 2,120 12,120 900 11,220 10,600 2,700 13,300 2,120 11,180 13,500 3,200 16,700 2,700 14,000 34,100 ,200 37,300 900 36,400 Less: Beginning inventory Units produced Feedback 3. Direct materials purchases budget January February March Total Part K298 Part K298 Part C30 Part K298 Part C30 Units produced Dir. mat. per unit Part C30 11,220 3 11,220 2 36,400 Part 030 11,180 3 11,180 2 Part K298 14,000 2 14,000 3 36,400 2 3 Production 22,440 33,660 22,360 33,540 28,000 42,000 72,800 109,200 needs Desired EI Total needed 6,708 29,148 6,732 10,062 43,722 10,098 8,400 30,760 6,708 12,600 46,140 10,062 9,900 37,900 8,400 14,850 56,850 12,600 9,900 82,700 6,732 14,850 124,050 10,098 Less: BI Dir. mat. to purchase 22,416 33,624 24,052 Correct 44,250 75,968 113,952 Cost per unit $ 4 $ 7 $ 4 $ 7 $ 4 $ 7 $ 4 $ 7 Total purchase cost $ 89,664 $ 235,368 $ 96,208 $ 252,546 $ 118,000 $309,750 $ 303,872 $ 797,664 Feedback Check My Work | 4. Direct labor budget. Round your answers to two decimal places, if required. January February Units to be produced 11,220 11,180 Direct labor time per unit 1.5 1.5 (hrs.) Total hours needed 16,830 16,770 Wages per hour 20 $ 20 Total direct labor cost $ 336,600 $ 335,400 March 14,000 1.5 21,000 20 420,000 Total 36,400 1.5 54,600 20 1,092,000 $ $ $ $ Feedback 5. Overhead budget. Round your answers to two decimal places, If required. January February March Total Budgeted direct 16,830 16,770 21,000 54,600 labor hours Variable overhead rate 3.9 3.9 3.9 3.9 Budgeted var. $ 65,637 $ 65,403 $ 81,900 $ 212,940 overhead Budgeted fixed overhead 161,900 161,900 161,900 485,700 Total overhead cost $ 227,537 $ 227,303 $243,800 $698,640 6. Selling and administrative expense budget. Round your answers to the nearest cent, If required. January February March Total Planned sales 10,000 10,600 13,500 34,100 Variable selling & administrative expense per $ 6.6 $ 6.6 $ 6.6 $ 6.6 unit Total variable expense $ 66,000 $ 69,960 $ 89,100 $225,060 Fixed selling & administrative expense: Salaries Depreciation Other 88,500 25,000 137,000~ $ 250,500 316,500 $ 88,500 25,000 137,000 $250,500 320,460 $ 88,500 25,000 137,000 $250,500 339,600 $265,500 75,000 411,000 $751,500 976,560 Total fixed expenses Total selling & administrative expenses Feedback Check My Work