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 February March April May 10,000 10,500 13.000 16,000 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 Materials Per-Unit Usage Unit Cost Part #K298 Part #C30 2 3 $4 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 Power Maintenance Supervision Depreciation Taxes Other $- - 12,500 14.000 45,000 4.300 86.000 $1.00 0.20 1.10 - - - 1.60 e. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Activity is measured in units sold.) Fixed Cost Variable Cost Salaries Commissions Depreciation Shipping Other $ 88,500 - 25,000 - 137,000 - $1.40 - 3.60 1.60 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: 1. Sales budget 2. Production budget 3. Direct materials purchases budget
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 February March April May |
10,000 10,500 13.000 16,000 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 Materials | Per-Unit Usage | Unit Cost |
| Part #K298 Part #C30 |
2 3 |
$4 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 Power Maintenance Supervision Depreciation Taxes Other |
$- - 12,500 14.000 45,000 4.300 86.000 |
$1.00 0.20 1.10 - - - 1.60 |
e. Monthly selling and administrative expenses are also estimated
using a flexible budgeting formula. (Activity is measured in units
sold.)
| Fixed Cost | Variable Cost | |
| Salaries Commissions Depreciation Shipping Other |
$ 88,500 - 25,000 - 137,000 |
- $1.40 - 3.60 1.60 |
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:
1. Sales budget
2. Production budget
3. Direct materials purchases budget
4. Direct labor budget
5. Overhead budget
6. Selling and administrative expense budget
7. Ending finished goods inventory budget
8. Cost of goods sold budget
9.
10.
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