Operating Budget, Comprehensive AnalysisPonderosa, 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.January10,000February10,600March13,300April16,000May18,500The 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 MaterialPer-Unit UsageUnit CostPart #K2982 $4 Part #C303 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 $20.Overhead each month is estimated using a flexible budget formula. (Activity is measured in direct labor hours.) Fixed CostComponentVariable CostComponentSupplies$ — $1.00 Power— 0.20 Maintenance12,500 1.10 Supervision14,000 — Depreciation45,000 — Taxes4,300 — Other86,000 1.60 Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Activity is measured in units sold.) Fixed CostsVariable CostsSalaries$ 88,600 — Commissions— $1.40 Depreciation25,000 — Shipping— 3.60 Other137,000 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. # Direct Materials and Labor Budgets## 3. Direct Materials Purchases BudgetThis section outlines the budget for purchasing direct materials over three months—January, February, and March—for two parts: Part K298 and Part C30. The table also calculates total values for the quarter.### Table Structure:- **Columns**: Each column is split into 3 months and a total column. Every month has sub-columns for Part K298 and Part C30.- **Rows**: - Units produced - Direct materials per unit - Production needs - Desired ending inventory (EI) - Total needed - Less: beginning inventory (BI) - Direct materials to purchase - Cost per unit - Total purchase costEach cell is intended to be filled with the relevant data inputs or calculations.---## 4. Direct Labor BudgetThis section provides a template for budgeting direct labor over the same three-month period, including a total for the quarter.### Table Structure:- **Columns**: Similar to the materials budget, the columns are divided into January, February, March, and Total. - **Rows**: - Units to be produced - Direct labor time per unit (in hours) - Total hours needed - Wages per hour - Total direct labor costThe purpose is to offer a structured format for planning the labor cost associated with production. Each entry requires numerical analysis, and results may be rounded to two decimal places if necessary. # Monthly Operating Budget for the First Quarter## Sales Budget### 1. Sales Budget Schedule:The table below outlines the sales budget for the months of January, February, and March, along with a total column.| | January | February | March | Total ||---------------|---------|----------|-------|--------|| **Units** | 10,000 | 10,600 | 13,300| || **Unit Selling Price** | $900 (incorrect) | -$900 (incorrect) | -$900 (incorrect) | || **Sales** | | | | |**Note**: The unit selling price must be corrected as negative values are typically not applicable here.## Production Budget### 2. Production Budget Schedule:This table projects production needs based on sales and inventory requirements.| | January | February | March | Total ||----------------------------|---------|----------|-------|--------|| **Unit Sales** | | | | || **Desired Ending Inventory**| | | | || **Total Needed** | | | | || **Less: Beginning Inventory** | | | | || **Units Produced** | | | | |This budget plan organizes projected unit sales, desired ending inventory, and calculates the units produced for each month in the first quarter.**Feedback Sections:**Editable sections marked as "Feedback" allow for input and suggestions to ensure accuracy in the budget preparation process.

Budget means the expected value of future. Budget is not affected by the actual value as it is…

Answered: 3. Direct materials purchases budget…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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	13,300
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.