Operating Budget, Comprehensive Analysis The following data pertain to productio
ID: 2480695 • Letter: O
Question
Operating Budget, Comprehensive Analysis
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 direct labor used per unit of output is three hours. The average direct labor cost per hour is $14.25.
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.)
a. Schedule 1: Sales Budget. Do not include a multiplication symbol as part of your answer.
Allison Manufacturing
Sales Budget
For the Quarter Ended March 31
January
February
March
Total
Units
Selling price
$
$
$
$
Sales
$
$
$
$
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1. Review Cornerstone 9-1 through Cornerstone 9-12.
Learning Objective 1, Learning Objective 2, Learning Objective 3, and Learning Objective 4.
b. Schedule 2: Production Budget.
Allison Manufacturing
Production Budget
For the Quarter Ended March 31
January
February
March
Total
Sales
Desired ending inventory
Total needs
Less: Beginning inventory
Units to be produced
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1. Review Cornerstone 9-1 through Cornerstone 9-12.
Learning Objective 1, Learning Objective 2, Learning Objective 3, and Learning Objective 4.
c. Schedule 3: Direct Materials Purchases Budget. Do not include a multiplication symbol as part of your answer.
Allison Manufacturing
Direct Materials Purchases Budget
For the Quarter Ended March 31
January Metal
January Components
February Metal
February Components
March Metal
March Components
Total Metal
Total Components
Units to be produced
Direct materials per unit
Production needs
Desired ending inventory
Total needs
Less: Beginning inventory
Direct materials to be purchased
Cost per unit
$
$
$
$
$
$
$
$
Total cost
$
$
$
$
$
$
$
$
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1. Review Cornerstone 9-1 through Cornerstone 9-12.
Learning Objective 1, Learning Objective 2, Learning Objective 3, and Learning Objective 4.
d. Schedule 4: Direct Labor Budget. If required, round amounts to the nearest cent. Do not include a multiplication symbol as part of your answer.
Allison Manufacturing
Direct Labor Budget
For the Quarter Ended March 31
January
February
March
Total
Units to be produced
Direct labor time per unit (hours)
Total hours needed
Cost per hour
$
$
$
$
Total cost
$
$
$
$
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1. Review Cornerstone 9-1 through Cornerstone 9-12.
Learning Objective 1, Learning Objective 2, Learning Objective 3, and Learning Objective 4.
e. Schedule 5: Overhead Budget. If required, round amounts to the nearest cent. Do not include a multiplication symbol as part of your answer.
Allison Manufacturing
Overhead Budget
For the Quarter Ended March 31
January
February
March
Total
Budgeted direct labor hours
Variable overhead rate
$
$
$
$
Budgeted variable overhead
$
$
$
$
Budgeted fixed overhead
Total overhead
$
$
$
$
Hidea. Schedule 1: Sales Budget. Do not include a multiplication symbol as part of your answer.
Allison Manufacturing
Sales Budget
For the Quarter Ended March 31
January
February
March
Total
Units
Selling price
$
$
$
$
Sales
$
$
$
$
Explanation / Answer
Solution :
Sales Budget
For the Quarter Ended March 31
January
February
March
Total
Units
40000
50000
60000
150000
Selling price
205
205
205
205
Sales
8,200,000
10,250,000
12,300,000
30750000
Production Budget
For the Quarter Ended March 31
January
February
March
Total
Sales
40000
50000
60000
150000
Desired ending inventory
40000
48000
48000
136000
Total needs
80000
98000
108000
286000
Less: Beginning inventory
32000
40000
48000
120000
Units to be produced
48000
58000
60000
166000
Direct Materials Purchases Budget
For the Quarter Ended March 31
January Metal
January Components
February Metal
February Components
March Metal
March Components
Total Metal
Total Components
Units to be produced
48000
48000
58000
58000
60000
60000
166000
166000
Direct materials per unit
10
6
10
6
10
6
10
6
Production needs
480000
288000
580000
348000
600000
360000
1660000
996000
Desired ending inventory
290000
174000
300000
180000
30800
30800
620800
384800
Total needs
770000
462000
880000
528000
630800
390800
2280800
1380800
Less: Beginning inventory
240000
144000
290000
174000
300000
180000
830000
498000
Direct materials to be purchased
530000
318000
590000
354000
330800
210800
1450800
882800
Cost per unit
8
5
8
5
8
5
8
5
Total cost
4240000
1590000
4720000
1770000
2646400
1054000
11606400
4414000
Direct Labor Budget
For the Quarter Ended March 31
January
February
March
Total
Units to be produced
48000
58000
60000
166000
Direct labor time per unit (hours)
3
3
3
3
Total hours needed
144000
174000
180000
498000
Cost per hour
14.25
14.25
14.25
14.25
Total cost
2052000
2479500
2565000
7096500
Overhead Budget
For the Quarter Ended March 31
January
February
March
Total
Budgeted direct labor hours
144000
174000
180000
498000
Variable overhead rate
6
6
6
6
Budgeted variable overhead
864000
1044000
1080000
2988000
Budgeted fixed overhead
448000
448000
448000
1344000
Total overhead
1312000
1492000
1528000
4332000
Sales Budget
For the Quarter Ended March 31
January
February
March
Total
Units
40000
50000
60000
150000
Selling price
205
205
205
205
Sales
8,200,000
10,250,000
12,300,000
30750000
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