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 salesin units for the coming 5 months follow:January 40,000February 50,000March 60,000April 60,000May 62,000The following data pertain to production policies and manufacturing specifications followed by Allison Manufacturing:a. Finished goods inventory on January 1 is 32,000 units, each costing $166.06. The desiredending inventory for each month is 80% of the next month’s sales.b. The data on materials used are as follows:Direct Material Per-Unit Usage DM Unit CostMetal 10 lbs. $8Components 6 5Inventory policy dictates that sufficient materials be on hand at the end of the month toproduce 50% of the next month’s production needs. This is exactly the amount of materialon hand on December 31 of the prior year.c. The direct labor used per unit of output is 3 hours. The average direct labor cost per houris $14.25.d. Overhead each month is estimated using a flexible budget formula. (Note: Activity ismeasured in direct labor hours.) Fixed-CostComponent Variable-CostComponentSupplies — $1.00Power — 0.50Maintenance $ 30,000 0.40Supervision 16,000 —Depreciation 200,000 —Taxes 12,000 —Other 80,000 0.50e. Monthly selling and administrative expenses are also estimated using a flexible budgetingformula. (Note: Activity is measured in units sold.) Fixed Costs Variable CostsSalaries $50,000 —Commissions — $2.00Depreciation 40,000 —Shipping — 1.00Other 20,000 0.60f. The unit selling price of the subassembly is $205.g. All sales and purchases are for cash. The cash balance on January 1 equals $400,000. Thefirm 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 cashborrowed is repaid at the end of the quarter, as is the interest due (cash borrowed at theend 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. Sales budgetb. Production budgetc. Direct materials purchases budgetd. Direct labor budgete. Overhead budgetf. Selling and administrative expenses budgetg. Ending finished goods inventory budgeth. Cost of goods sold budgeti. Budgeted income statementj. Cash budget2. CONCEPTUAL CONNECTION Form a group with two or three other students. Locatea manufacturing plant in your community that has headquarters elsewhere. Interviewthe controller for the plant regarding the master budgeting process. Ask when theprocess starts each year, what schedules and budgets are prepared at the plant level, howthe controller forecasts the amounts, and how those schedules and budgets fit in withthe overall corporate budget. Is the budgetary process participative? Also, find out howbudgets are used for performance analysis. Write a summary of the interview.Use the following information for Problems 9-67 through 9-69:Ladan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food. BasicDietis a standard mixture for healthy dogs. SpecialDiet is a reduced protein formulation forolder dogs with health problems. The two dog foods use common raw materials in different proportions. The company expects to produce 80,000 bags of each product during thecoming year. BasicDiet requires 0.20 direct labor hour per bag, and SpecialDiet requires0.30 direct labor hour per bag. Ladan has developed the following fixed and variable costsfor each of the four overhead items:Overhead Item Fixed Cost Variable Rate perDirect Labor HourMaintenance $57,250 $0.50Power 0.40Indirect labor 43,500 2.10Rent 39,000
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:
a. 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.
b. 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.
c. The direct labor used per unit of output is 3 hours. The average direct labor cost per hour
is $14.25.
d. Overhead each month is estimated using a flexible budget formula. (Note: Activity is
measured in direct labor hours.)
Fixed-CostComponent Variable-CostComponent
Supplies — $1.00
Power — 0.50
Maintenance $ 30,000 0.40
Supervision 16,000 —
Taxes 12,000 —
Other 80,000 0.50
e. 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
f. The unit selling price of the subassembly is $205.
g. 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. Sales budget
b. Production budget
c. Direct materials purchases budget
d. Direct labor budget
e. Overhead budget
f. Selling and administrative expenses budget
g. Ending finished goods inventory budget
h. Cost of goods sold budget
i. Budgeted income statement
j. Cash budget
2. CONCEPTUAL CONNECTION Form a group with two or three other students. Locate
a manufacturing plant in your community that has headquarters elsewhere. Interview
the controller for the plant regarding the
process starts each year, what schedules and budgets are prepared at the plant level, how
the controller
the overall corporate budget. Is the budgetary process participative? Also, find out how
budgets are used for performance analysis. Write a summary of the interview.
Use the following information for Problems 9-67 through 9-69:
Ladan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food. BasicDiet
is a standard mixture for healthy dogs. SpecialDiet is a reduced protein formulation for
older dogs with health problems. The two dog foods use common raw materials in different proportions. The company expects to produce 80,000 bags of each product during the
coming year. BasicDiet requires 0.20 direct labor hour per bag, and SpecialDiet requires
0.30 direct labor hour per bag. Ladan has developed the following fixed and variable costs
for each of the four overhead items:
Overhead Item Fixed Cost Variable Rate perDirect Labor Hour
Maintenance $57,250 $0.50
Power 0.40
Indirect labor 43,500 2.10
Rent 39,000
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