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	13,000
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	$ 88,500	—
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

	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

See Cornerstone 8.12.

Feedback

Partially correct

Answer 1

Solution:

1)

Sales Budget
	January	February	March	Total
Units	10000	10500	13000	33500
Unit selling price	$110	$110	$110	$110
Sales	$1,100,000	$1,155,000	$1,430,000	$3,685,000

2)

Production Budget
	January	February	March	Total
Unit sales	10000	10500	13000
Desired ending inventory	2100	2600	3200
Total needed	12100	13100	16200
Less: Beginning inventory	900	2100	2600
Units produced	11200	11000	13600	35800

March Ending Inventory = April Sales Unit 16,000*20% = 3,200 Units

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	11200	11000	11000	11000	13600	13600
Dir. mat. per unit	2	3	2	3	2	3
Production needs	22400	33000	22000	33000	27200	40800
Desired Ending inventory (30% of next months production need)	6600	9900	8160	12240	9900 (April Production Units 16500*2*20%)	14850 (April Production Units 16500*3*20%)
Total needed	29000	42900	30160	45240	37100	55650
Less: BI	6720	9900	6600	9900	8160	12240
Dir. mat. to purchase	22280	33000	23560	35340	28940	43410	74780	111750
Cost per unit	$4	$7	$4	$7	$4	$7	$4	$7
Total purchase cost	$89,120	$231,000	$94,240	$247,380	$115,760	$303,870	$299,120	$782,250

4)

Direct labor budget
	January	February	March	Total
Units to be produced	11200	11000	13600
Direct labor time per unit (hrs.)	1.5	1.5	1.5
Total hours needed	16800	16500	20400	53700
Wages per hour	$20	$20	$20	$20
Total direct labor cost	$336,000	$330,000	$408,000	$1,074,000

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for remaining parts