Question

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

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:

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.)

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	40000	50000	60000	150000
Selling price	$205	205	205	205
Sales	$8200000	$10250	$12300000	$30750000

b. Schedule 2: Production Budget.

Allison Manufacturing
Production Budget
For the Quarter Ended March 31
	January	February	March	Total
Sales	40000	50000	60000	150000
Desired ending inventory	40000	48000	48000	48000
Total needs	80000	98000	108000	198000
Less: Beginning inventory	32000	40000	48000
Units to be produced	48000	58000	60000

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	48000	48000	58000	58000	60000	60000
Direct materials per unit	10	6	10	6	10	6
Production needs	480000	288000	580000	348000	600000	360000
Desired ending inventory	290000	174000	300000	180000	308000	184800
Total needs						544800
Less: Beginning inventory
Direct materials to be purchased
Cost per unit	$	$	$	$	$8	$5	$	$
Total cost	$	$	$	$	$	$	$	$

d. Schedule 4: Direct Labor Budget.round amounts to the nearest cent.

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	$	$	$	$

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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Incorrect

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		$

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i. Schedule 9: Budgeted Income Statement. Use a minus sign to indicate a negative amount.

Allison Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales	$
Less: Cost of goods sold
Gross margin	$
Less: Selling and administrative expenses
Income before taxes	$

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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	$	$	$	$
Cash receipts
Cash available	$	$	$	$
Less Disbursements:
Purchases	$	$	$	$
Direct labor
Overhead
Selling & admin.
Total	$	$	$	$
Tentative ending balance	$	$	$	$
Borrowed/repaid
Interest paid
Ending balance	$	$	$	$

Answer 1

Answer is given below with all working

Allison Manufacturing Sales Budget For the Quarter Ended March 31 January February March 40,000 50,000 60,000 $2051 $205 $8,200,000 $10,250,000 $12,300,000 Units Selling price Sales $205 Total 150,000 $205 $30,750,000 Sales Desired Ending Inventory Total Needs Less: Beginning Inventory Units to be produced Allison Manufacturing Production Budget For the Quarter Ended March 31 January February 40,000 50,000 40,000 48,000 80,000 98,000 32,000 40,000 48,000 58,000 March 60,000 48,000 108,000 48,000) 60,000 Total 150,000 48,000 198,000 32,000 166,000 April 60,000 49,600 109,600 48,000 61,600 Allison Manufacturing Direct Material Purchase Budget For the Quarter Ended March 31st January January February February | March March Total Metals Components Metals Components Metals Components Metals 48,000 48,000 58,000 58,000 60,000 60,000 166,000 Total Components 166,000 10 Units to be produced Direct Material per unit Production Needs Desired ending inventory Total Needs Less: Beginning Inventory Direct Material to be purchased Cost per unit Total Cost 480,000 290,000 770,000 240,000 530,000 288,000 174,000 462,000 144,000 318,000 580,000 300,000 880,000 290,000 590,000 348,000 180,000 528,000 174,000 354,000 600,000 308,000 908,000 300,000 608,000 360,000 1,660,000 184,800 308,000 544,800 2,558,000 180,000 240,000 364,800 1,728,000 $5 $1,824,000 $13,824,000 996,000 184,800 1,534,800 144,000 1,036,800 $8 $4,240,000 $1,590,000 $4,720,000 $1,770,000 $4,864,000 $5,184,000 Allison Manufacturing Direct Labor Budget For the Quarter Ended March 31 January February 48,000 58,000 March 60,000 Total 166,000 Units to be produced Direct Labor time per unit Total hours needed Cost per hour Total Cost 144,000 $14.25 $2,052,000 174,000 $14.25 $2,479,500 180,000 $14.25 $2,565,000 498,000 $14.25 $7,096,500 Allison Manufacturing Overhead Budget For the Quarter Ended March 31 January February 144,000 174,000 $2.40 $2.401 $345,600 $417,600 March 180,000 $2.400 $432,000 Total 498,000 $2.40 $1,195,200 Budgeted Direct Labor hours Variable Overhead rate Budgeted Variable Overhead Fixed Overhead Maintenance Supervision Depreciation Taxes Other Total Manufacturing Overhead $30,000 $16,000 $200,000 $12,000 $80,000 $683,600 $30,000 $16,000 $200,000 $12,000 $80,000 $755,600 $30,000 $16,000 $200,000 $12,000 $80,000 $770,000 $90,000 $48,000 $600,000 $36,000 $240,000 $2,209,200 Allison Manufacturing Selling and Administrative Expense Budget For the Quarter Ended March 31 January February f. Planned Sales 40,000 50,000 Variable Selling and admn expense/unit $3.60 $3.60 Total variable expense $144,000 $180,000 Fixed Selling and admn expense Salaries $50,000 $50,000 Depreciation $40,000 $40,000 Other $20,000 $20,000 Total Fixed expenses $110,000 $110,000 March 60,000 $3.60 $216,000 150,000 $3.60 $540,000 $50,000 $40,000 $20,000 $110,000 $150,000 $120,000 $60,000 $330,000 Total Selling and administration expense $254,000 $290,000 $326,000 $870,000 $80.00 $30.00 Allison Manufacturing Unit Cost Computation Direct Material Metal Components Direct Labor Overhead Variable Fixed Total Unit Cost Finished Good Inventory $110.00 $42.75 $7.20 $6.11 $166.06 7,970,805 Allison Manufacturing Cost of Goods Sold Budget For the Quarter Ended March 31st Direct Materials Metals $13,824,000 Components $5,184,000 Direct Labor Use Overhead Budgeted Manufacturing Cost Add: Beginning Finished Goods Cost of Goods available for sale Less: Ending Finished Goods Budgeted Cost of Goods Sold $19,008,000 $7,096,500 $2,209,200 $28,313,700 $5,313,920 $33,627,620 $7,970,805 $25,656,815 Allison Manufacturing Budgeted Income Statement For the Quarter Ended March 31 Sales Less: Cost of Goods Sold Gross Margin Less: Selling and administration expense Income before taxes $30,750,000 $25,656,815 $5,093,185 $870,000 $4,223,185 Allison Manufacturing Cash Budget For the Quarter Ended March 31st January February March | $400,000 $50,000 $524,900 $8,200,000 $10,250,000 $12,300,000 $8,600,000 $10,300,000 $12,824,900 Total $400,000 $30,750,000 $31,150,000 Beginning Balance Cash Receipts Cash Available Less: Disbursements Purchase Direct Labor Overhead Selling and admn Total Tentative ending balance Borrowed/repaid Interest (12% per annum) Ending Balance $5,830,000 $2,052,000 $483,600 $214,000 $8,579,600 $20,400 $29,600 $6,490,000 $6,688,000 $2,479,500 $2,565,000 $555,600 $570,000 $250,000 $286,000 $9,775,100 $10,109,000 $524,900 $2,715,900 -$29,600 -$888 $524,900 $2,685,412 $19,008,000 $7,096,500 $1,609,200 $750,000 $28,463,700 $2,686,300 $50,000 -$888 $2,685,412 Interest is computed for 3 month at 12% per annum