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

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   10.500 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                       $4 Part #C30                       3                         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                           $ –                                       $1 Power                                 –                                       $0,20 Maintenance                      12.500                              $1,10 Supervision                        14.000                              – Depreciation                      45.000                              – Taxes                                  4.300                                – Other                                 86.000                              1,6 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                                – Commisions                                        –                                $1,4 Depreciation                             $25.000                                – Shipping                                             –                                $3,6 Other                                         $137.000                            $1,6 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: a. Sales budget b. Production budget c. Direct materials purchases budget d. Direct labor budget e. Overhead budget f. Selling and administrative expense budget g. Ending finished goods inventory budget h. Cost of goods sold budget i. Budgeted income statement (ignore income taxes) j. Cash budget

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