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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Operating Budget, Comprehensive Analysis

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:

Chapter 9, Problem 66P, Operating Budget, Comprehensive Analysis Allison Manufacturing produces a subassembly used in the , example  1

The following data pertain to production policies and manufacturing specifications followed by Allison Manufacturing:

  1. 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.
  2. b. The data on materials used are as follows:

Chapter 9, Problem 66P, Operating Budget, Comprehensive Analysis Allison Manufacturing produces a subassembly used in the , example  2

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.

  1. c. The direct labor used per unit of output is 3 hours. The average direct labor cost per hour is $14.25.
  2. d. Overhead each month is estimated using a flexible budget formula. (Note: Activity is measured in direct labor hours.)

Chapter 9, Problem 66P, Operating Budget, Comprehensive Analysis Allison Manufacturing produces a subassembly used in the , example  3

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

Chapter 9, Problem 66P, Operating Budget, Comprehensive Analysis Allison Manufacturing produces a subassembly used in the , example  4

  1. f. The unit selling price of the subassembly is $205.
  2. 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. 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.)
    1. a. Sales budget
    2. b. Production budget
    3. c. Direct materials purchases budget
    4. d. Direct labor budget
    5. e. Overhead budget
    6. f. Selling and administrative expenses budget
    7. g. Ending finished goods inventory budget
    8. h. Cost of goods sold budget
    9. i. Budgeted income statement
    10. j. Cash budget
  2. 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 master budgeting process. Ask when the process starts each year, what schedules and budgets are prepared at the plant level, how the controller forecasts the amounts, and how those schedules and budgets fit in with 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.

1.

a.

To determine

Prepare sales budget.

Explanation

Sales budget for the first quarter:

Particulars

January

($)

February

($)

March

($)

Total

($)

b.

To determine

Prepare production budget.

c.

To determine

Prepare direct materials purchases budget.

d.

To determine

Prepare direct labor budget.

e.

To determine

Prepare overhead budget.

f.

To determine

Prepare selling and administrative expenses budget.

g.

To determine

Prepare ending goods inventory budget.

h.

To determine

Prepare COGS budget.

i.

To determine

Prepare budgeted income statement.

i.

To determine

Prepare budgeted income statement.

j.

To determine

Prepare cash budget.

2.

To determine

Prepare summary regarding budgets used in ABC incorporation.

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