Question

Operating Budget, Comprehensive Analysis

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	10,600
March	13,500
April	16,000
May	18,500

The following data pertain to production policies and manufacturing specifications followed by Ponderosa:

1. Finished goods inventory on January 1 is 900 units. The desired ending inventory for each month is 20 percent of the next month’s sales.
2. 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 month’s production needs. This is exactly the amount of material on hand on January 1.

3. The direct labor used per unit of output is one and one-half hours. The average direct labor cost per hour is $20.
4. 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	12,600	1.10
   Supervision	14,000	—
   Depreciation	45,000	—
   Taxes	4,300	—
   Other	86,000	1.60

5. 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

6. The unit selling price of the wiring harness assembly is $110.
7. In February, the company plans to purchase land for future expansion. The land costs $68,000.
8. 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:

1. Sales budget

	January	February	March	Total
Units
Unit selling price	$	$	$	$
Sales	$	$	$	$

Feedback

See Cornerstone 8.1.

2. Production budget

	January	February	March	Total
Unit sales
Desired ending inventory
Total needed
Less: Beginning inventory
Units produced

Feedback

See Cornerstone 8.2.

3. Direct materials purchases budget

	January		February		March		Total
	Part K298	Part C30	Part K298	Part C30	Part K298	Part C30	Part K298	Part C30
Units produced
Dir. mat. per unit
Production needs
Desired EI
Total needed
Less: BI
Dir. mat. to purchase
Cost per unit	$	$	$	$	$	$	$	$
Total purchase cost	$	$	$	$	$	$	$	$

Feedback

See Cornerstone 8.3.

4. Direct labor budget. Round your answers to two decimal places, if required.

	January	February	March	Total
Units to be produced
Direct labor time per unit (hrs.)
Total hours needed
Wages per hour	$	$	$	$
Total direct labor cost	$	$	$	$

Feedback

See Cornerstone 8.4.

5. Overhead budget. Round your answers to two decimal places, if required.

	January	February	March	Total
Budgeted direct labor hours
Variable overhead rate
Budgeted var. overhead	$	$	$	$
Budgeted fixed overhead
Total overhead cost	$	$	$	$

Feedback

See Cornerstone 8.5.

6. Selling and administrative expense budget. Round your answers to the nearest cent, if required.

	January	February	March	Total
Planned sales
Variable selling & administrative expense per unit	$	$	$	$
Total variable expense	$	$	$	$
Fixed selling & administrative expense:
Salaries	$	$	$	$
Depreciation
Other
Total fixed expenses	$	$	$	$
Total selling & administrative expenses	$	$	$	$

Feedback

See Cornerstone 8.9.

7. Ending finished goods inventory budget. Round intermediate calculations to the nearest cent. Round your answers to the nearest cent, if required.

Unit cost computation:
Direct materials:
Part K298	$
Part C30
Direct labor
Overhead:
Variable
Fixed
Total unit cost	$
Number of units
Finished goods	$

Feedback

See Cornerstone 8.6.

8. Cost of goods sold budget

Direct materials used
Part K298	$
Part C30		$
Direct labor used
Overhead
Budgeted manufacturing costs		$
Add: Beginning finished goods
Goods available for sale		$
Less: Ending finished goods
Budgeted cost of goods sold		$

Feedback

See Cornerstone 8.7.

9. Budgeted income statement (ignore income taxes)

Sales	$
Less: Cost of goods sold
Gross margin	$
Less: Selling and administrative expense
Income before income taxes	$

Feedback

See Cornerstone 8.10.

10. Cash budget
Enter a negative balance as a negative amount, and if an amount is zero enter "0".

	January	February	March	Total
Beginning balance	$	$	$	$
Cash receipts
Total cash available	$	$	$	$
Disbursements:
Purchases	$	$	$	$
DL payroll
Overhead
Marketing & admin
Land
Total disbursements	$	$	$	$
Ending balance	$	$	$	$
Financing:
Borrowed/repaid
Interest paid
Ending cash balance	$	$	$	$

Feedback

Answer 1

January February March Total April 40 1. Sales budget 41 Particulars 42 43 Unit Sales Unit Selling price 45 Sales 10,000 110 1,100,000 10,600 110 1,166,000 13,500 110 1,485,000 34,100 110 3,751,000 16,000 110 1,760,000 2 Production budget Particulars January February March Total April May 18500 51 Unit Sales 52 Desired Ending inventory 53 Total needed 54 Less Beginning Inventory 55 Units to be produced 10,000 2,120 12,120 900 11,220 10,600 2,700 13,300 2,120 11,180 13,500 3,200 16,700 2,700 14,000 34,100 3,200 37,300 900 36,400 16,000 3700 19,700 3.200 16,500

January Part K298 11,220 Part C30 11,220 Part C30 11,180 2 22,440 6,708 29,148 6,732 22,416 33,660 10,062 43,722 10,098 33,624 February Part K298 | 11,180 2 22,360 8,400 30,760 6,708 24,052 33,540 12,600 46,140 10,062 36,078 Particulars 58 59 Units to be produced 60 Per Unit 61 Material needed in production 62 Add Desired Ending inventory of raw Material 63 Total Etimated material Required 64 Less Beginning Inventory of raw material 65 Material to be purchased 66 Cost Per Unit 67 Cost of Material to be purchased 68 69 Direct labor budget 70 71 Particulars 72 73 Units to be produced 74 Labor hours required per unit of finished goods 75 Total labor hours needed 76 Labor rate per Hour 77 Total Direct Labor Cost March Total Part K298 Part C30 Part K298 14,000 14,000 36,400 2 28,000 42,000 72,800 9,900 14,850 9,900 37,900 56,850 82,700 8.400 12,600 6,732 29,500 44,250 75,968 4 7 118,000 309,750303,872 April Part C30 Part K298 Part C30 36,400 16,500 16,500 2 109,200 33,000 49,500 14,850 124,050 10,098 113,952 89,664 235,368 96,208 252,546 797,664 January February March Total 11,220 1.5 16,830 20.00 336,600 11,180 1.5 16,770 20.00 335,400 14,000 1.5 21,000 20.00 420,000 36,400 1.5 54,600 20.00 1,092,000