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perating Budget, Comprehensive Analysis Ponderosa, Inc., produces wiring harness

ID: 2492119 • Letter: P

Question

perating 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.

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:

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.)

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

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.

8 Cost of goods sold budget

9. Budgeted income statement (ignore income taxes)

10. Cash budget
Enter a negative balance as a negative amount, and if an amount is zero enter "0".

Direct materials used Part K298 $ Part C30     $ Direct labor used     Overhead     Budgeted manufacturing costs $ Add: Beginning finished goods     Goods available for sale $ Less: Ending finished goods     Budgeted cost of goods sold $

Explanation / Answer

8.

Cost of goods sold budget

Direct materials used (Schedule 3):

Part K29 (71,600 × $4.00)

$286,400

Part C30 (107,400 × $7.00)

$751,800

$1,038,200

Direct labor used (Schedule 4)

$1,074,000

Overhead (Schedule 5)

$694,830

Budgeted manufacturing costs

$2,807,030

Add: Beginning finished goods (900 × $78.41)

$ 70,569

Goods available for sale

$2,877,599

Less: Ending finished goods (Schedule 7)

$250,912

Budgeted cost of goods sold

$2,626,687

9.

Budgeted income statement

Sales (Schedule 1)

$3,685,000

Less: Cost of goods sold (Part No. 8)

$2,626,687

Gross margin

$1,058,313

Less: Selling and administrative expense (Schedule 6)

$972,600

Income before income taxes

$ 85,713.00

10.

Cash budget

January

February

March

Total

Beginning balance

$ 62,900

$ 30,020

$ 25,450

$ 62,900

Cash receipts

$1,100,000

$1,155,000

$1,430,000

$3,685,000

Total cash available

$1,162,900

$1,185,020

$1,455,450

$3,747,900

Disbursements:

Purchases

$323,060

$341,620

$419,630

$1,084,310

DL payroll

$336,000

$330,000

$408,000

$1,074,000

Overhead*

$182,320

$181,150

$196,360

$559,830

Marketing & admin.(excluding depreciation)

$291,500

$294,800

$311,300

$897,600

Land

$ 68,000

$ 68,000

Total disbursements

$1,132,880

$1,215,570

$1,335,290

$3,683,740

Ending balance

$ 30,020

$ -30,550

$120,160

$ 64,160

Financing:

Borrowed/repaid

$ 0

$ 56,000

$ -56,000

$ 0

Interest paid

$ 0

$ 0

$ -560

$ -560

Ending cash balance

$ 30,020

$ 25,450

$ 63,600

$ 63,600

Schedule 1: Sales budget

January

February

March

Total

Units

10,000

10,500

13,000

33,500

Unit selling price

$ 110

$ 110

$ 110

$ 110

Sales

$1,100,000

$1,155,000

$1,430,000

$3,685,000

Schedule 2: Production budget

January

February

March

Total

Unit sales (Schedule 1)

10,000

10,500

13,000

33,500

Desired ending inventory

2,100

2,600

3,200

3,200

Total needed

12,100

13,100

16,200

36,700

Less: Beginning inventory

900

2,100

2,600

900

Units produced

11,200

11,000

13,600

35,800

Schedule 3: Direct materials purchases budget (Assumes May sales equal April sales in units)

January

February

March

Total

Part K29

Part C30

Part K29

Part C30

Part K29

Part C30

Part K29

Part C30

Units produced

11,200

11,200

11,000

11,000

13,600

13,600

35,800

35,800

Dir. mat. per unit

2

3

2

3

2

3

2

3

Production needs

22,400

33,600

22,000

33,000

27,200

40,800

71,600

107,400

Desired EI

6,600

9,900

8,160

12,240

9,900

14,850

9,900

14,850

Total needed

29,000

43,500

30,160

45,240

37,100

55,650

81,500

122,250

Less: BI

6,720

10,080

6,600

9,900

8,160

12,240

6,720

10,080

Dir. mat. to purchase

22,280

33,420

23,560

35,340

28,940

43,410

74,780

112,170

Cost per unit

$ 4

$ 7

$ 4

$ 7

$ 4

$ 7

$ 4

$ 7

Total purchase cost

$89,120

$233,940

$94,240

$247,380

$115,760

$303,870

$299,120

$785,190

Schedule 4: Direct labor budget

January

February

March

Total

Units to be produced

(Schedule 2)

11,200

11,000

13,600

35,800

Direct labor time per

unit (hrs.)

1.5

1.5

1.5

1.5

Total hours needed

16,800

16,500

20,400

53,700

Wages per hour

$ 20

$ 20

$ 20

$ 20

Total direct labor cost

$336,000

$330,000

$408,000

$1,074,000

Schedule 5: Overhead budget

January

February

March

Total

Budgeted direct labor hours (Schedule 4)

16,800

16,500

20,400

53,700

Variable overhead rate

$ 3.90

$ 3.90

$ 3.90

$ 3.90

Budgeted var. overhead

65,520

$ 64,350

$ 79,560

$2,09,430

Budgeted fixed overhead

161,800

161,800

161,800

485,400

Total overhead cost

$227,320

$226,150

$241,360

$694,830

Schedule 6: Selling and administrative expense budget

January

February

March

Total

Planned sales (Schedule 1)

10,000

10,500

13,000

33,500

Variable selling & administrative expense per unit

$ 6.60

$ 6.60

$ 6.60

$ 6.60

Total variable expense

66,000

69,300

$ 85,800

$221,100

Fixed selling & administrative expense:

Salaries

88,500

88,500

88,500

265,500

Depreciation

25,000

25,000

25,000

75,000

Other

137,000

137,000

137,000

411,000

Total fixed expenses

250,500

250,500

250,500

$751,500

Total selling & administrative exp.

$316,500

$319,800

$336,300

$972,600

Schedule 7: Ending finished goods inventory budget

Unit cost computation:

Direct materials:

Part K29 (2 × $4)

$ 8.00

Part C30 (3 × $7)

$ 21.00

Direct labor (1.5 × $20)

$ 30.00

Overhead:

Variable (1.5 × $485,000/53,700)

$ 5.85

Fixed (1.5 × $9.04)*

$ 13.56

Total unit cost

$ 78.41

Finished goods (units)

3200

Total value of finished goods

$250,912.00

Cost of goods sold budget

Direct materials used (Schedule 3):

Part K29 (71,600 × $4.00)

$286,400

Part C30 (107,400 × $7.00)

$751,800

$1,038,200

Direct labor used (Schedule 4)

$1,074,000

Overhead (Schedule 5)

$694,830

Budgeted manufacturing costs

$2,807,030

Add: Beginning finished goods (900 × $78.41)

$ 70,569

Goods available for sale

$2,877,599

Less: Ending finished goods (Schedule 7)

$250,912

Budgeted cost of goods sold

$2,626,687