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 13,800
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 12,600 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 $62,700. 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.

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 $ $ $ $