Question 1: Operating Budget

Use the template on the next page to make your calculations then write your totals in the “Calculate” location below.

Aaron’s Avionics has the contract to provide a subassembly to Bombardier for their C Series aeroplane.  They plan to ramp up production in the first quarter of 2018 to reach a steady state of 110 parts per month.  They will sell 500 parts in January, rising to 600 in February, 700 in March, and finally 800 per month from April forward.  They charge Bombardier $180 per part.  Their production plan calls for 10% of the month’s sales to be available at the beginning of the month (the end of the previous month).  Each part requires 1.5 Kg of aluminum at a cost of $2.20 per kilogram.  They have an operating practice of holding 20% of a month’s requirement in inventory at the beginning of the month.  It takes eight hours of direct labour to make one part.  They have 15 staff in December and can hire & train only five staff per month (which they will every month starting in January).  Manufacturing staff are paid $18 per hour with a time-and-a-half overtime premium.  Staff work 160 hours per month with any further hours required at the overtime rate.

Calculate:

A.Revenue for Q1                    ___________________________________

B.Parts inventory at the end of Q1            ___________________________________

C.Production for Q1                    ___________________________________

D.Kilograms of aluminum used in Q1            ___________________________________

E.Aluminum materials inventory at the end of Q1    ___________________________________

F.Aluminum purchase cost for Q1            ___________________________________

G.Direct Labour Hours Required            ___________________________________

H.Direct labour cost for regular time            ___________________________________

I.Overtime cost for Q1                    ___________________________________

Total Labour cost for Q1   

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