Question

1. 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	10,500
   March	13,100
   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	$ 88,600	—
      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	$	$	$	$

   2. Production budget

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

   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	$	$	$	$	$	$	$	$

   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	$	$	$	$

   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	$	$	$	$

   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	$	$	$	$

   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	$

   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		$

   9. Budgeted income statement (ignore income taxes)

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

   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	$	$	$	$

Answer 1

1	Sales budget
		January	February	March	Total
	Units	10,000	10,500	13,100	33,600
	Unit selling price	$110	$110	$110	$110
	Sales	$1,100,000	$1,155,000	$1,441,000	$3,696,000
2	Production budget
		January	February	March	Total		April
	Unit sales	10,000	10,500	13,100	33,600		16,000
	Desired ending inventory	2,100	2,620	3,200	7,920		3,700
	Total needed	12,100	13,120	16,300	41,520		19,700
	Less: Beginning inventory	900	2,100	2,620	5,620		3,200
	Units produced	11,200	11,020	13,680	35,900		16,500
3	Direct materials purchases budget
		January		February		March		Total			April
		Part K298	Part C30	Part K298	Part C30	Part K298	Part C30	Part K298	Part C30		Part K298	Part C30
	Units produced	11,200	11,200	11,020	11,020	13,680	13,680	35,900	35,900		16,500	16,500
	Dir. mat. per unit	2	3	2	3	2	3	2	3		2	3
	Production needs	22,400	33,600	22,040	33,060	27,360	41,040	71,800	107,700		33,000	49,500
	Desired EI	6,612	9,918	8,208	12,312	9,900	14,850	24,720	37,080
	Total needed	29,012	43,518	30,248	45,372	37,260	55,890	96,520	144,780
	Less: BI	1,800	2,700	22,400	33,600	22,040	33,060	46,240	69,360
	Dir. mat. to purchase	27,212	40,818	7,848	11,772	15,220	22,830	50,280	75,420
	Cost per unit	$4	$7	$4	$7	$4	$7	$4	$7
	Total purchase cost	$108,848	$285,726	$31,392	$82,404	$60,880	$159,810	$201,120	$527,940
4		January	February	March	Total
	Units to be produced	11,200	11,020	13,680	35,900
	Direct labor time per unit (hrs.)	1.5	1.5	1.5	1.5
	Total hours needed	16,800	16,530	20,520	53,850
	Wages per hour	$20	$20	$20	$20
	Total direct labor cost	$336,000	$330,600	$410,400	$1,077,000