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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

  1. 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 13,900
    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 $ 88,600
      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 $62,800. 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:

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

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

    Feedback

    See Cornerstone 8.4.

    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 $ $ $ $

    Feedback

    See Cornerstone 8.12.

    Feedback

    Partially correct

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