Question

Morganton Company makes one product and it provided the following information to help prepare the master budget:

1. The budgeted selling price per unit is $65. Budgeted unit sales for June, July, August, and September are 8,200, 12,000, 14,000, and 15,000 units, respectively. All sales are on credit.
2. Forty percent of credit sales are collected in the month of the sale and 60% in the following month.
3. The ending finished goods inventory equals 20% of the following month’s unit sales.
4. The ending raw materials inventory equals 10% of the following month’s raw materials production needs. Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost $2.00 per pound.
5. Twenty percent of raw materials purchases are paid for in the month of purchase and 80% in the following month.
6. The direct labor wage rate is $13 per hour. Each unit of finished goods requires two direct labor-hours.
7. The variable selling and administrative expense per unit sold is $1.30. The fixed selling and administrative expense per month is $62,000.
8. There is no fixed manufacturing overhead and the variable manufacturing overhead is $8 per direct labor hours.

Construct a Direct Materials Schedule Budget:

Direct Materials Budget
			June	July	August	September	Total
Required Production in Units
Units of Raw Materials Needed per Unit
Units of Raw Materials Needed to Meet Production
Add Desired Units of Ending Raw Materials Inventory			6,200
Total Units of Raw Materials Needed
Less Units of Beginning Raw Materials Inventory
Units of Raw Materials to be Purchased
Cost of Raw Materials Per Pound			2
Cost of Raw Materials to be Purchased

Answer 1

Direct Materials Budget
						June	July	August
Required Production in Units						8960	12400	14200
Units of Raw Materials Needed per Unit						5	5	5
Units of Raw Materials Needed to Meet Production						44800	62000	71000
Desired Units of Ending Raw Materials Inventory						6200	7100
Total Units of Raw Materials Needed						51000	69100
Units of Beginning Raw Materials Inventory						4480	6200
Units of Raw Materials to be Purchased						46520	62900
Cost of Raw Materials Per Pound						$           2.00	$             2.00
Cost of Raw Materials to be Purchased						$ 93,040.00	$ 125,800.00

	Production Budget
	Particulars			June	July	August	September
	Sales (in units)			8200	12000	14000	15000
Add:	Desired ending inventory			2400	2800	3000
Less:	Beginning inventory			1640	2400	2800
	Production required			8960	12400	14200

Note: With the given information, direct materials budget could be prepared for the month of June and July only.