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Operating Budget, Comprehensive Analysis

Allison Manufacturing produces a subassembly used in the production of jet aircraft engines. The assembly is sold to engine manufacturers and aircraft maintenance facilities. Projected sales in units for the coming $5$ months follow:

January $40,000$

February $50,000$

March $60,000$

April $60,000$

May $62,000$

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

Finished goods inventory on January $1$ is $32,000$ units, each costing $$166\mathrm{.}06.$ The desired ending inventory for each month is $80\%$ of the next month's sales.

The data on materials used are as follows:

Direct Material Per$-$Unit Usage DM Unit Cost $($$$)$

Metal $10$ lbs$.8$

Components $65$

Inventory policy dictates that sufficient materials be on hand at the end of the month to produce $50\%$ of the next month's production needs. This is exactly the amount of material on hand on December $31$ of the prior year.

The direct labor used per unit of output is $3$ hours. The average direct labor cost per hour is $$14\mathrm{.}25.$

Overhead each month is estimated using a flexible budget formula. $($Note: Activity is measured in direct labor hours.$)$

Fixed$-$Cost

Component $($$$)$ Variable$-$Cost

Component $($$$)$

Supplies $1\mathrm{.}00$

Power $0\mathrm{.}50$

Maintenance $30,0000\mathrm{.}40$

Supervision $16,000$

Depreciation $200,000$

Taxes $12,000$

Other $80,0000\mathrm{.}50$

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

Fixed

Costs $($$$)$ Variable

Costs $($$$)$

Salaries $50,000$

Commissions $2\mathrm{.}00$

Depreciation $40,000$

Shipping $1\mathrm{.}00$

Other $20,0000\mathrm{.}60$

The unit selling price of the subassembly is $$205.$

All sales and purchases are for cash. The cash balance on January $1$ equals $$400,000.$ The firm requires a minimum ending balance of $$50,000.$ If the firm develops a cash shortage by the end of the month, sufficient cash is borrowed to cover the shortage. Any cash borrowed is repaid at the end of the quarter, as is the interest due $($cash borrowed at the end of the quarter is repaid at the end of the following quarter$).$ The interest rate is $12\%$ per annum. No money is owed at the beginning of January.

Required:

$1.$ Prepare a monthly operating budget for the first quarter with the following schedules. $($Note: Assume that there is no change in work$-$in$-$process inventories.$)$

Question Content Area

a$.$ Schedule $1$: Sales Budget. Do not include a multiplication symbol as part of your answer.

Allison Manufacturing

Sales Budget

For the Quarter Ended March $31$

January February March Total

Units

Selling price

Sales

Question Content Area

b$.$ Schedule $2$: Production Budget.

Allison Manufacturing

Production Budget

For the Quarter Ended March $31$

January February March Total

Sales

Desired ending inventory

Total needs

Less: Beginning inventory

Units to be produced

Question Content Area

c$.$ Schedule $3$: Direct Materials Purchases Budget. Do not include a multiplication symbol as part of your answer.

Allison Manufacturing

Direct Materials Purchases Budget

For the Quarter Ended March $31$

January Metal January Components February Metal February Components March Metal March Components Total Metal Total Components

Units to be produced

Direct materials per unit

Production needs

Desired ending inventory

Total needs

Less: Beginning inventory

Direct materials to be purchased

Cost per unit

Total cost

Question Content Area

d$.$ Schedule $4$: Direct Labor Budget. If required, round amounts to the nearest cent. Do not include a multiplication symbol as part of your answer.

Allison Manufacturing

Direct Labor Budget

For the Quarter Ended March $31$

January February March Total

Units to be produced

Direct labor time per unit $($hours$)$

Total hours needed

Cost per hour

Total cost

Question Content Area

e$.$ Schedule $5$: Overhead Budget. If required, round amounts to the nearest cent. Do not include a multiplication symbol as part of your answer.

Allison Manufacturing

Overhead Budget

For the Quarter Ended March $31$

January February March Total

Budgeted direct labor hours

Variable overhead rate

Budgeted variable overhead

Budgeted fixed overhead

Total overhead

Question Content Area

f$.$ Schedule $6$: Selling and Administrative Expenses Budget. If required, round amounts to the nearest cent. Do not include a multiplication symbol as part of your answer.

Allison Manufacturing

Selling and Administrative Expenses Budget

For the Quarter Ended March $31$

January February March Total

Planned sales

Variable selling and administrative expenses per unit

Total variable expense

F