Question

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:

1. 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.
2. 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.
3. The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25.
4. 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

5. 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

6. The unit selling price of the subassembly is $205.
7. 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:

j. Schedule 10: Cash Budget. If an amount is zero, enter "0". Use a minus sign to enter a negative amount.

Allison Manufacturing
Cash Budget
For the Quarter Ended March 31
	January	February	March	Total
Beginning balance	$400000	$50000	$	$400000
Cash receipts	8200000	10250000	12300000	30750000
Cash available	$8600000	$10300000	$	$31150000
Less Disbursements:
Purchases	$5830000	$6490000	$6688000	$19008000
Direct labor	2052000	2479500	2565000	7096500
Overhead	483600	555600	570000	1609200
Selling & admin.	214000	250000	286000	750000
Total	$214000	$9775100	$10109000	$28463700
Tentative ending balance	$20400	$524900	$	$2686300
Borrowed/repaid	29600	-29600	0	0
Interest paid	0		0
Ending balance	$50000	$	$	$

Answer 1

		Cash Budget
				Jan	Feb	Mar	Total
Beginning balance				400000	50000	524900	974900
Cash receipts				8200000	10250000	12300000	30750000
				(40000*205)	(50000*205)	(60000*205)
Cash available				8600000	10300000	12824900	31724900
Less Disbursements:
Purchases		(Note:1)		5830000	6490000	6688000	19008000
Direct labor		(Note:2)		2052000	2479500	2565000	7096500
Overhead		(Note:3)		483600	555600	570000	1609200
Selling & admin.		(Note:4)		214000	250000	286000	750000
Total				8579600	9775100	10109000	28463700
Tentative ending balance				20400	524900	2715900	3261200
Borrowed/repaid				29600	0	-29600	0
				(50000-20400)
Interest paid		(For 2 months)		0	0	-592	-592
						(29600*12%*2/12)
Ending balance				50000	524900	2685708	3260608
Note:1
		Units to be produced
				Jan	Feb	Mar	Apr	May
Sales in units				40000	50000	60000	60000	62000
Add: Ending inventory				40000	48000	48000	49600
(80% of next month's sales)				(50000*80%)	(60000*80%)	(60000*80%)	(62000*80%)
				80000	98000	108000	109600
Less: Beginning inventory				32000	40000	48000	48000
Units to be produced				48000	58000	60000	61600
		Material cost
				Jan	Feb	Mar	Apr
Units to be produced			1	48000	58000	60000	61600
Metal:
Per-unit usage		(in lbs)		10	10	10	10
Metal required		(in lbs)		480000	580000	600000	616000
Add: Ending inventory				290000	300000	308000
(50% next month production needs)				(580000*50%)	(600000*50%)	(616000*50%)
				770000	880000	908000
Less: Beginning inventory				240000	290000	300000
				(480000*50%)
Material to be purchased				530000	590000	608000
DM unit cost		(in $)		8	8	8
Purchase cost of metal			(A)	4240000	4720000	4864000
Components:
Per-unit usage			2	6	6	6	6
Component required			1*2	288000	348000	360000	369600
Add: Ending inventory				174000	180000	184800
(50% next month production needs)				(348000*50%)	(360000*50%)	(369600*50%)
				462000	528000	544800
Less: Beginning inventory				144000	174000	180000
				(288000*50%)
Material to be purchased				318000	354000	364800
DM unit cost				5	5	5
Purchase cost of metal			(B)	1590000	1770000	1824000
Total purchase cost			(A)+(B)	5830000	6490000	6688000
Note:2
			Direct labor cost
				Jan	Feb	Mar
Units to be produced				48000	58000	60000
Direct labor used per unit			(In hrs)	3	3	3
Total DLH required				144000	174000	180000
direct labor cost per hour			(in $)	14.25	14.25	14.25
Direct labor cost			(in $)	2052000	2479500	2565000