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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 $166.06. 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	6		5

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 $14.25.

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			1.00
Power			0.50
Maintenance	30,000		0.40
Supervision	16,000
Depreciation	200,000
Taxes	12,000
Other	80,000		0.50

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			2.00
Depreciation	40,000
Shipping			1.00
Other	20,000		0.60

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.)

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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

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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

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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

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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

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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

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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
Fixed selling and administrative expenses:
Salaries
Depreciation
Other
Total fixed expenses
Total selling and administrative expenses

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g. Schedule 7: Ending Finished Goods Inventory Budget. If required, round amounts to the nearest cent.

Allison Manufacturing Ending Finished Goods Inventory Budget For the Quarter Ended March 31

Unit cost computation:
Direct materials:
Metal
Components
Direct labor
Overhead:
Variable
Fixed
Total unit cost
Finished goods inventory

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h. Schedule 8: Cost of Goods Sold Budget.

Allison Manufacturing Cost of Goods Sold Budget For the Quarter Ended March 31

Direct materials
Metal
Components
Direct labor used
Overhead
Budgeted manufacturing costs
Add: Beginning finished goods
Cost of goods available for sale
Less: Ending finished goods
Budgeted cost of goods sold