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 14,000 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 12,500 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 $ 88,500 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.

Required:

Prepare a monthly operating budget for the first quarter with the following schedules:

3. Direct materials purchases budget January February March Part K298 Part C30 Part K298 Part C30 Part K298 Part C30 Units produced 11,200 11,200 11,000 X 11,000 X 15,600| x 15,600 X Dir. mat. per unit 2 Production needs Desired EI 22,400 V 33,600 22,000 x 33,000 x 31,200X 46,800 x 6,600 X 29,000X 8,700 X 20,300 X 9,900 X 8,160 X 12,240 X Total needed 43,500 X 30,160X 45,240 X 13,050 Accounting numeric field 30,450 Less: BI 6,600 9,900 Dir. mat. to purchase 23,560 x 35,340 X Cost per unit 7 Total purchase 81,200x 213,150x 92,240x 247,380 X cost