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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 13,900
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 $ 88,500 —
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 $62,800. 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.
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 13,900 April 16,000 May 18,500 The following data pertain to production policies and manufacturing specifications followed by Ponderosa: a. 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. b. 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. C. The direct labor used per unit of output is one and one-half hours. The average direct labor cost per hour is $20. d. Overhead each month is estimated using a flexible budget formula. (Activity is measured in direct labor hours.) Fixed Cost Variable Cost Component Component Supplies $1.00 Power 0.20
C. The direct labor used per unit of output is one and one-half hours. The average direct labor cost per hour is $20. d. Overhead each month is estimated using a flexible budget formula. (Activity is measured in direct labor hours.) Fixed Cost Variable Cost Component 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 e. 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 f. The unit selling price of the wiring harness assembly is $110. 9. In February, the company plans to purchase land for future expansion. The land costs $68,000. h. All sales and purchases are for cash. The cash balance on January 1 equals $62,800. 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.
3. Direct materials purchases budget January February March Total Part K298 Part C30 Part K298 Part 030 Part K298 Part 030 Part K298 Part C30 Units produced 11,220 ✓ 11,220 11,260 11,260 14,320 ✓ 14,320 ✓ 36,800 36,800 Dir. mat. per unit 2 3 ✓ 27 3 2 3 ✓ 2 3 Production needs 22,440 33,660 ✓ 22,520 → 33,780 28,640 ✓ 42,960 ✓ 73,600 110,400 Desired EI 6,756 10,134 7 8,592 12,888 1,080 X 14,850 10,134 x 14,850 Total needed 29,196 43,794 → 31,112 46,668 38,774 x 57,810 ✓ 83,734 x 125,250 Less: BI : 6,732 10,098 → 6,756 → 10,134 8,592 12,888 ✓ 6,732 ✓ 10,098 . Dir. mat. to purchase 22,464 ✓ 33,696 24,356 x 36,534 30,182 X 44,922 77,002 X 115,152 Cost per unit 7 7 7 4 7 Total purchase cost 89,856 235,872 97,424 x 255,738 120,728 x 314,4547 308,008 X 806,064
10. Cash budget Enter a negative balance as a negative amount, and if an amount is zero enter "o". January February March Total Beginning balance 62,800 31,112 x 25,450 x 62,800 x Cash receipts 1,100,000 x 1,166,000 X 1,529,000 x 3,795,000 x Total cash available 1,162,800 x $ Х х X Disbursements: Purchases 235,872 x 255,738 x 314,454 x 806,064 x DL payroll 336,600 x 337,800 x 429,600 x 1,104,000 x Overhead 227,537 x 227,771 x 245,672 X 700,980 x Marketing & admin 316,500 x 320,460 X 342,240 x 979,200 X Land 68,000 x Total disbursements х X Ending balance Х х Financing: Borrowed/repaid х х х Interest paid х Ending cash balance Х