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	13,700
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	12,500	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.

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	12,500	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:

Question Content Area

1. Sales budget

	January	February	March	Total
Units	fill in the blank bc4fa1fedfaa062_1	fill in the blank bc4fa1fedfaa062_2	fill in the blank bc4fa1fedfaa062_3	fill in the blank bc4fa1fedfaa062_4
Unit selling price	$fill in the blank bc4fa1fedfaa062_5	$fill in the blank bc4fa1fedfaa062_6	$fill in the blank bc4fa1fedfaa062_7	$fill in the blank bc4fa1fedfaa062_8
Sales	$fill in the blank bc4fa1fedfaa062_9	$fill in the blank bc4fa1fedfaa062_10	$fill in the blank bc4fa1fedfaa062_11	$fill in the blank bc4fa1fedfaa062_12

Question Content Area

2. Production budget

	January	February	March	Total
Unit sales	fill in the blank f8ccfafb5fd703c_1	fill in the blank f8ccfafb5fd703c_2	fill in the blank f8ccfafb5fd703c_3	fill in the blank f8ccfafb5fd703c_4
Desired ending inventory	fill in the blank f8ccfafb5fd703c_5	fill in the blank f8ccfafb5fd703c_6	fill in the blank f8ccfafb5fd703c_7	fill in the blank f8ccfafb5fd703c_8
Total needed	fill in the blank f8ccfafb5fd703c_9	fill in the blank f8ccfafb5fd703c_10	fill in the blank f8ccfafb5fd703c_11	fill in the blank f8ccfafb5fd703c_12
Less: Beginning inventory	fill in the blank f8ccfafb5fd703c_13	fill in the blank f8ccfafb5fd703c_14	fill in the blank f8ccfafb5fd703c_15	fill in the blank f8ccfafb5fd703c_16
Units produced	fill in the blank f8ccfafb5fd703c_17	fill in the blank f8ccfafb5fd703c_18	fill in the blank f8ccfafb5fd703c_19	fill in the blank f8ccfafb5fd703c_20