Operating Budget, Comprehensive Analysis Allison Manufacturing produces a subassembly used in the production of jet aircraft engines. The assembly is sold to engine manufacturers and aircraft maintenance facilities. Projected sales in units for the coming 5 months follow: January 40,000 February 50,000 March 60,000 April 60,000 May 62,000 The following data pertain to production policies and manufacturing specifications followed by Allison Manufacturing: Finished goods inventory on January 1 is 32,000 units, each costing $166.06. The desired ending inventory for each month is 80% of the next month's sales. The data on materials used are as follows: Direct Material Per-Unit Usage DM Unit Cost ($) Metal 10 lbs. 8 Components 6 5Inventory policy dictates that sufficient materials be on hand at the end of the month to produce 50% of the next month's production needs. This is exactly the amount of material on hand on December 31 of the prior year. The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25. Overhead each month is estimated using a flexible budget formula. (Note: Activity is measured in direct labor hours.) Fixed-Cost Component ($) Variable-Cost Component ($) Supplies — 1.00 Power — 0.50 Maintenance 30,000 0.40 Supervision 16,000 — Depreciation 200,000 — Taxes 12,000 — Other 80,000 0.50 Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Note: Activity is measured in units sold.) Fixed Costs ($) Variable Costs ($) Salaries 50,000 — Commissions — 2.00 Depreciation 40,000 — Shipping — 1.00 Other 20,000 0.60 The unit selling price of the subassembly is $205. All sales and purchases are for cash. The cash balance on January 1 equals $400,000. The firm requires a minimum ending balance of $50,000. If the firm develops a cash shortage by the end of the month, sufficient cash is borrowed to cover the shortage. Any cash borrowed is repaid at the end of the quarter, as is the interest due (cash borrowed at the end of the quarter is repaid at the end of the following quarter). The interest rate is 12% per annum. No money is owed at the beginning of January. Required: 1. Prepare a monthly operating budget for the first quarter with the following schedules. (Note: Assume that there is no change in work-in-process inventories.) Schedule 7: Ending Finished Goods Inventory Budget. If required, round amounts to the nearest cent. Allison Manufacturing Ending Finished Goods Inventory Budget For the Quarter Ended March 31 h. Schedule 8: Cost of Goods Sold Budget. Allison Manufacturing Cost of Goods Sold Budget For the Quarter Ended March 31 Schedule 9: Budgeted Income Statement. Use a minus sign to indicate a negative amount. Allison Manufacturing Budgeted Income Statement For the Quarter Ended March 31 Schedule 10: Cash Budget. If an amount is zero, enter "0". Use a minus sign to enter a negative amount. Allison Manufacturing Cash Budget For the Quarter Ended March 31

Operating Budget, Comprehensive Analysis Allison Manufacturing produces a subassembly used in the production of jet aircraft engines. The assembly is sold to engine manufacturers and aircraft maintenance facilities. Projected sales in units for the coming 5 months follow: January 40,000 February 50,000 March 60,000 April 60,000 May 62,000 The following data pertain to production policies and manufacturing specifications followed by Allison Manufacturing: Finished goods inventory on January 1 is 32,000 units, each costing $166.06. The desired ending inventory for each month is 80% of the next month's sales. The data on materials used are as follows: Direct Material Per-Unit Usage DM Unit Cost ($) Metal 10 lbs. 8 Components 6 5Inventory policy dictates that sufficient materials be on hand at the end of the month to produce 50% of the next month's production needs. This is exactly the amount of material on hand on December 31 of the prior year. The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25. Overhead each month is estimated using a flexible budget formula. (Note: Activity is measured in direct labor hours.) Fixed-Cost Component ($) Variable-Cost Component ($) Supplies — 1.00 Power — 0.50 Maintenance 30,000 0.40 Supervision 16,000 — Depreciation 200,000 — Taxes 12,000 — Other 80,000 0.50 Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Note: Activity is measured in units sold.) Fixed Costs ($) Variable Costs ($) Salaries 50,000 — Commissions — 2.00 Depreciation 40,000 — Shipping — 1.00 Other 20,000 0.60 The unit selling price of the subassembly is $205. All sales and purchases are for cash. The cash balance on January 1 equals $400,000. The firm requires a minimum ending balance of $50,000. If the firm develops a cash shortage by the end of the month, sufficient cash is borrowed to cover the shortage. Any cash borrowed is repaid at the end of the quarter, as is the interest due (cash borrowed at the end of the quarter is repaid at the end of the following quarter). The interest rate is 12% per annum. No money is owed at the beginning of January. Required: 1. Prepare a monthly operating budget for the first quarter with the following schedules. (Note: Assume that there is no change in work-in-process inventories.) Schedule 7: Ending Finished Goods Inventory Budget. If required, round amounts to the nearest cent. Allison Manufacturing Ending Finished Goods Inventory Budget For the Quarter Ended March 31 h. Schedule 8: Cost of Goods Sold Budget. Allison Manufacturing Cost of Goods Sold Budget For the Quarter Ended March 31 Schedule 9: Budgeted Income Statement. Use a minus sign to indicate a negative amount. Allison Manufacturing Budgeted Income Statement For the Quarter Ended March 31 Schedule 10: Cash Budget. If an amount is zero, enter "0". Use a minus sign to enter a negative amount. Allison Manufacturing Cash Budget For the Quarter Ended March 31

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Operating Budget, Comprehensive Analysis

Allison Manufacturing produces a subassembly used in the production of jet aircraft engines. The assembly is sold to engine manufacturers and aircraft maintenance facilities. Projected sales in units for the coming 5 months follow:

January	40,000
February	50,000
March	60,000
April	60,000
May	62,000

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

Finished goods inventory on January 1 is 32,000 units, each costing $166.06. The desired ending inventory for each month is 80% of the next month's sales.
The data on materials used are as follows:

Direct Material Per-Unit Usage DM Unit Cost ($)

Metal 10 lbs. 8

Components 6 5

Inventory policy dictates that sufficient materials be on hand at the end of the month to produce 50% of the next month's production needs. This is exactly the amount of material on hand on December 31 of the prior year.
The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25.

Overhead each month is estimated using a flexible budget formula. (Note: Activity is measured in direct labor hours.)

	Fixed-Cost Component ($)	Variable-Cost Component ($)
Supplies	—		1.00
Power	—		0.50
Maintenance	30,000		0.40
Supervision	16,000		—
Depreciation	200,000		—
Taxes	12,000		—
Other	80,000		0.50

Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Note: Activity is measured in units sold.)

Fixed
Costs ($) Variable
Costs ($)

Salaries 50,000 —

Commissions — 2.00

Depreciation 40,000 —

Shipping — 1.00

Other 20,000 0.60
The unit selling price of the subassembly is $205.
All sales and purchases are for cash. The cash balance on January 1 equals $400,000. The firm requires a minimum ending balance of $50,000. If the firm develops a cash shortage by the end of the month, sufficient cash is borrowed to cover the shortage. Any cash borrowed is repaid at the end of the quarter, as is the interest due (cash borrowed at the end of the quarter is repaid at the end of the following quarter). The interest rate is 12% per annum. No money is owed at the beginning of January.

Required:

1. Prepare a monthly operating budget for the first quarter with the following schedules. (Note: Assume that there is no change in work-in-process inventories.)

Schedule 7: Ending Finished Goods Inventory Budget. If required, round amounts to the nearest cent.

Allison Manufacturing

Ending Finished Goods Inventory Budget

For the Quarter Ended March 31

h. Schedule 8: Cost of Goods Sold Budget.

Allison Manufacturing

Cost of Goods Sold Budget

For the Quarter Ended March 31

Schedule 9: Budgeted Income Statement. Use a minus sign to indicate a negative amount.

Allison Manufacturing

Budgeted Income Statement

For the Quarter Ended March 31

Schedule 10: Cash Budget. If an amount is zero, enter "0". Use a minus sign to enter a negative amount.

Allison Manufacturing

Cash Budget

For the Quarter Ended March 31

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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Direct Material	Per-Unit Usage	DM Unit Cost ($)
Metal	10 lbs.		8
Components	6		5

	Fixed Costs ($)	Variable Costs ($)
Salaries	50,000		—
Commissions	—		2.00
Depreciation	40,000		—
Shipping	—		1.00
Other	20,000		0.60