Operating Budget, Comprehensive Analysis (3)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.Required:Prepare a monthly operating budget for the first quarter with the following schedules: 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 aregiven below.January10,000February10,600March13,000April16,000May18,500The 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 CostPart #K29823$47Part #C30Inventory 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 $20.d. Overhead each month is estimated using a flexible budget formula. (Activity is measured in direct labor hours.)Variable CostFixed CostComponent$ComponentSupplies$1.00Power0.20Maintenance12,5001.10Supervision14,000Depreciation45,000Taxes4,30086,000Other1.60e. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Activity is measured in units sold.)Fixed CostsVariable CostsSalaries$ 88,500-Commissions$1.40Depreciation25,000Shipping3.60Other137,0001.60 5. Overhead budget. Round your answers to two decimal places, if required.JanuaryFebruaryMarchTotalBudgeted direct labor hoursVariable overhead rateBudgeted var. overheadBudgeted fixed overheadTotal overhead cost6. Selling and administrative expense budget. Round your answers to the nearest cent, if required.JanuaryFebruaryMarchPlanned salesVariable selling & administrative expense per unitTotal variable expenseFixed selling & administrative expense:SalariesDepreciationOtherTotal fixed expensesTotal selling & administrative expenses64FA69Total

Budgets are the forecasts or estimates to be made for future period of time. It includes sales…

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Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter7: Budgeting

Section: Chapter Questions

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Operating Budget, Comprehensive Analysis (3)

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.

Required:

Prepare a monthly operating budget for the first quarter with the following schedules:

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
10,600
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
3
$4
7
Part #C30
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.)
Variable Cost
Fixed Cost
Component
$
Component
Supplies
$1.00
Power
0.20
Maintenance
12,500
1.10
Supervision
14,000
Depreciation
45,000
Taxes
4,300
86,000
Other
1.60
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
-
Commissions
$1.40
Depreciation
25,000
Shipping
3.60
Other
137,000
1.60

5. Overhead budget. Round your answers to two decimal places, if required.
January
February
March
Total
Budgeted direct labor hours
Variable overhead rate
Budgeted var. overhead
Budgeted fixed overhead
Total overhead cost
6. Selling and administrative expense budget. Round your answers to the nearest cent, if required.
January
February
March
Planned sales
Variable selling & administrative expense per unit
Total variable expense
Fixed selling & administrative expense:
Salaries
Depreciation
Other
Total fixed expenses
Total selling & administrative expenses
64
FA
69
Total

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