Experiential Problem Elem Cost Accounting Fall 2021

Pfizer, Inc. has just come out with an anti-viral drug called Molnupiravir that has an 89% efficacy against severe disease/hospitalization from Covid-19.

Janet informs you of the following data:

Pfizer, Inc. projects that their sales of the Molnupiravir anti-viral drug for the first 5 months of 2022 would be:

January	25,000
February	27,500
March	30,000
April	25,000
May	32,500

1) Finished goods inventory on January 1 is 1,500 units. The desired ending inventory for each month is 25% of next months sales.

2) There are only 2 ingredients that go into the anti-viral, Molnupiravir, as follows:

Direct Material	Per-Unit Usage	Unit Cost
Protease Inhibitor	3	$2.50
PF-07231332	5	$1.25

Inventory policy dictates that sufficient materials be on hand at the beginning of the month to satisfy 20% of the next months production needs. This is exactly the amount of material on hand on January 1, 2022.

3) The direct labor used per unit of output 2.5 hours. The average direct labor cost per hour is $50.00.

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

	Fixed Cost Component	Variable-Cost Component
Supplies	0.00	$2.00
Power	0.00	$0.25
Maintenance	15,000.00	$1.00
Supervision	17,500.00	$0.00
Depreciation	50,000.00	$0.00
Taxes	6,800.00	$0.00
Other	114,000.00	$1.95

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

	Fixed Cost Component	Variable-Cost Component
Salaries	$112,500.00	$0.00
Commissions	$ 0.00	$1.50
Depreciation	$ 32,000.00	$0.00
Shipping	$ 0.00	$2.50
Other	$150,000.00	$1.70

6) The unit selling price of one unit of the anti-viral is $250.00.

7) In February, the company plans to purchase another factory for further expansion. The factory costs $1,525,000.

8) All sales and purchases are for cash. The cash balance on January 1, 2022 equals $107,000. Pfizer, Inc. wants to have an ending cash balance each month of at least $100,000. If a cash shortage develops, sufficient cast 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 interest due. The interest rate is 8% per annum.

REQUIRED:

Prepare a monthly operating budget for the first quarter with the following schedule:

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 (Assume Beg FG unit costs are the same as current quarters production) i) Budgeted income statement (ignore income taxes and assume Marketing & Admin disbursement excludes depreciation since it is a noncash expense).

j) Cash budget