Prepare budgets for Allison Manufacturing based on the information below:

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 $60,000$

March $80,000$

April $80,000$

May $72,000$

The following data pertain to production policies and manufacturing

specifications followed by Allison Manufacturing:

a$.$ 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.

b$.$ The data on materials used are as follows:

Per$-$Unit DM

Unit

Direct Material Usage 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.

c$.$ The direct labor used per unit of output is $3$ hours. The average direct

labor cost per hour is $$14\mathrm{.}25.$

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

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

f$.$ The unit selling price of the subassembly is $$300.$

g$.$ 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

followingschedules. $($Note: Assume that there is no change in work$-$in$-$

process inventories.$)$

a$.$ Sales budget

b$.$ Production budget

c$.$ Direct materials purchases budget

d$.$ Direct labor budget

e$.$ Overhead budget

f$.$ Selling and administrative expenses budget

g$.$ Ending finished goods inventory budget

h$.$ Cost of goods sold budget