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: 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 Component Variable Cost Component Supplies $ - $1 Power - $0,20 Maintenance 12.500 $1,10 Supervision 14.000 - Depreciation 45.000 - Taxes 4.300 - Other 86.000 1,6 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 - Commisions - $1,4 Depreciation $25.000 - Shipping - $3,6 Other $137.000 $1,6 f. The unit selling price of the wiring harness assembly is $110. g. 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 $62,900. 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: Prepare a monthly operating budget for the first quarter with the following schedules: a. Budgeted income statement (ignore income taxes)
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:
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 Component Variable Cost Component
Supplies $ - $1
Power - $0,20
Maintenance 12.500 $1,10
Supervision 14.000 -
Taxes 4.300 -
Other 86.000 1,6
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 -
Commisions - $1,4
Depreciation $25.000 -
Shipping - $3,6
Other $137.000 $1,6
f. The unit selling price of the wiring harness assembly is $110.
g. 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 $62,900. 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:
Prepare a monthly operating budget for the first quarter with the following
schedules:
a.
b.
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