Q.4 (Marks 10)

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 five 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-UnitUsage UnitCost ($)

Metal10 lbs.8

Components65

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 labour used per unit of output is 3 hours. The average direct labour cost per hour is $14.25.

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

Overheads Fixed-Cost Variable cost

Supplies 1.00

Power 0.50

Maintenance 0,000 0.40

Supervision 16,000

Depreciation 200,000

TAXES 12,000

OTHERS 80,000 0.50

Required:

Prepare month wise operating budget for the first quarter with the following schedules.

a. Sales budget

b. Production budget

c. direct materials usage and purchases budget

d. direct labour budget

e. Overhead budget