Operating Budget, Comprehensive Analysis solution in excel

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 ve 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 speci cations 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 percent of the next month s sales.

b. The data on materials used are as follows:

Direct Material Per-Unit Usage Unit Cost ($)

Metal 10 lbs. 8

Components 6 5

Inventory policy dictates that suf cient materials be on hand at the end of the month to produce 50 percent 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 three hours. The average direct labor cost per hour is $14.25.

d. Overhead each month is estimated using a exible budget formula. (Note: Activity is measured in direct labor hours.)


Component ($)


Component ($)

Supplies 1.00

Power 0.50

Maintenance 30,000 0.40

Supervision 16,000

Depreciation 200,000

Taxes 12,000

Other 80,000 0.50

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


Costs ($)


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 rm requires a minimum ending balance of $50,000. If the rm develops a cash shortage by the end of the month, suf cient 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 percent per annum. No money is owed at the beginning of January.


Prepare a monthly operating budget for the rst 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 nished goods inventory budget

h. Cost of goods sold budget

i. Budgeted income statement

j. Cash budget