eBook Question Content Area 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: 9. Budgeted income statement (ignore income taxes)     Sales   Less: Cost of goods sold   Gross margin   Less: Selling and administrative expense   Income before income taxes     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

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 10,500
March 13,000
April 16,000
May 18,500

The following data pertain to production policies and manufacturing specifications followed by Ponderosa:

  1. 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.
  2. 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.

  3. The direct labor used per unit of output is one and one-half hours. The average direct labor cost per hour is $20.
  4. 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            
  5. 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            
  6. The unit selling price of the wiring harness assembly is $110.
  7. In February, the company plans to purchase land for future expansion. The land costs $68,000.
  8. 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:

9. Budgeted income statement (ignore income taxes)

   
Sales  
Less: Cost of goods sold  
Gross margin  
Less: Selling and administrative expense  
Income before income taxes  

 

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        
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