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 10,500 March 13,300 April 16,000 May 18,500 The following data pertain to production policies and manufacturing specifications followed by Ponderosa: 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. 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. The direct labor used per unit of output is one and one-half hours. The average direct labor cost per hour is $20. 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 12,500 1.10 Supervision 14,000 — Depreciation 45,000 — Taxes 4,300 — Other 86,000 1.60 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 The unit selling price of the wiring harness assembly is $110. In February, the company plans to purchase land for future expansion. The land costs $68,000. All sales and purchases are for cash. The cash balance on January 1 equals $62,900. 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 2. Ending finished goods inventory budget 3. cost of goods sold budget 4. budgeted income statement 5. cash budget

Answer 1

Sales Budget - Answer

	Jan	Feb	Mar
Sales Budget( Unit)	10,000	10,500	13,300
Unit Selling Price($)	110	110	110
Sales Budget($)	11,00,000	11,55,000	14,63,000

Information as below to prepare Sales Budget

1)

Month	Projected Sales in Unit
Jan	10,000
Feb	10,500
March	13,300
April	16,000
May	18,500

2) In the Question , it was mentioned that Unit Selling price would be $ 110 /unit . So Number of Unit * rate per unit = Month wise - determined Sales Value

Production unit calculation

Production Budget	Jan	Feb	Mar	Q1
Sales	10,000	10,500	13,300	33,800
Add- Closing Stock	2,100	2,660	3,200
Less - Opening Stock	900	2,100	2,660
Production	11,200	11,060	13,840	36,100
Fixed Cost
( as mentioned in Question )	4,85,400	( As mentioned in the Question - $ 161,800 per Month)
Number of Unit ( Jan- Mar)	36,100
Rate Per unit	13.45

Fixed overhead per unit $ 13.45 / unit ( Fixed cost monthly mentioned in the question - $ 161,800

Maintenance	12,500
Supervision	14,000
Depreciation	45,000
Taxes	4,300
Others	86,000
Total Fixed Cost	1,61,800

Overhead Budget	Jan	Feb	Mar	Q1
Production Unit	16,800	16,590	20,760	54,150
Overhead rate / Hr ( As update in Question) @ Variable OH level;	3.90	3.90	3.90
	65,520	64,701	80,964	2,11,185
Overhead cost				3.9

Answer -2

Finised Goods Inventory Budget
	Amnt ( $)
Part- k298	8.00
Part- c30	21.00
Direct Labour	30.00
Total Product Cost	59.00
variable Overhead	3.90
Fixed Cost	13.45
Total Unit cost	76.35
No of Unit	3,200.00
Finished Goods	2,44,320.00

Labour Budget

	Direct Labour Budget
	Jan	Feb	Mar	Q1
Production Unit	11,200	11,060	13,840	36,100
Rate / Hr	2	2	2
Hours needed	16,800	16,590	20,760	54,150
Rate / Hr	20	20	20
Labour Cost	3,36,000	3,31,800	4,15,200	10,83,000

Direct Material Overhead

	Direct material Budget
	Jan		Feb		Mar		April		Total Cost
	Part- k298	Part- c30	Part- k298	Part- c30	Part- k298	Part- c30	Part- k298	Part- c30
Unit Produced	16,800	16,800	16,590	16,590	20,760	20,760	33,000	33,000
Direct material / Unit ( as per Question)	2	3	2	3	2	3	2	3
Production	33,600	50,400	33,180	49,770	41,520	62,280	66,000	99,000
Add closing Stock	6,636	9,954	8,304	12,456	13,200	19,800			70,350
less - Opening Stock	6,720	10,080	6,636	9,954	8,304	12,456			54,150
Direct material	33,516	50,274	34,848	52,272	46,416	69,624
Rate	4	7	4	7	4	7
Cost($)	1,34,064	3,51,918	1,39,392	3,65,904	1,85,664	4,87,368			16,64,310

Cost of Goods Sold Bugdte	Amnt($)
Direct Material
Part- k298	4,59,120
Part- c30	12,05,190
Direct Labour	10,83,000
Product Direct Cost	27,47,310
Variable OH	2,11,185
Fixed Cost	4,85,400
Add Inventory @ start	54,150
Less Inventory @ Closing	70,350
Cost of goods sold	34,27,695

Income Statement :

Budgeted Income Statement	Amnt($)
Sales Revenue	37,18,000
Cost of Goods Sold	34,27,695
Margin	2,90,305
Selling cost
Fixed	2,50,600	( as per Question)
variable	2,23,080	Selling unit ($ 33800)
Income before tax	-1,83,375