OPERATING BUDGET, COMPREHENSIVE ANALYSIS Leitner Manufacturing, Inc., produces control valves used in the production of oil field equipment. The control valves are sold to various gas and oil engineering companies throughout the United States. Projected sales in units for the coming four months are as follows:

January	20,000
February	25,000
March	30,000
April	30,000

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

a. Finished goods inventory on January 1 is 13,000 units. The desired ending inventory for each month is 70 percent of the next month’s sales.

b. The data on materials used are as follows:

Direct Material	Per-Unit Usage	Unit Cost
Part 714	5	$4
Part 502	3	3

Inventory policy dictates that sufficient materials be on hand at the beginning of the month to produce 50 percent of that month’s estimated sales. This is exactly the amount of material on hand on January 1.

c. The direct labor used per unit of output is two hours. The average direct labor cost per hour is $15.

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

Â	Fixed Cost	Variable Cost
Â	Component	Component
Supplies	$ —	$1.00
Power	—	0.20
Maintenance	28,000	1.10
Supervision	14,000	—
Depreciation	100,000	—
Taxes	7,000	—
Other	56,000	1.60

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

Â	Fixed Costs	Variable Costs
Salaries	$30,000	—
Commissions	—	$0.75
Depreciation	5,000	—
Shipping	—	2.60
Other	10,000	0.40

f. The unit selling price of the control valve is $90.

g. In February, the company plans to purchase land for future expansion. The land costs $90,000.

h. All sales and purchases are for cash. Cash balance on January 1 equals $162,900. If the firm develops cash shortage by the end of the month, sufficient cash is borrowed to cover the shortage. Any cash borrowed is repaid one month later, 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. Budgeted income statement (ignore income taxes)

10. Cash budget