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 13,800 April 16,000 May 18,500

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

Finished goods inventory on January 1 is 900 units. The desired ending inventory for each month is 20 percent of the next months sales. 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.

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

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

Fixed Costs Variable Costs Salaries $ 88,600 Commissions $1.40 Depreciation 25,000 Shipping 3.60 Other 137,000 1.60

The unit selling price of the wiring harness assembly is $110. In February, the company plans to purchase land for future expansion. The land costs $68,000. 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.

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 $ $ $ $

Feedback

See Cornerstone 8.5.

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 $ $ $ $

Feedback

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 $ $ $ $