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 Schedule of Production Budget:

Production Budget
For The Year Ended
( in units )
			June	July	August	September
Budgeted Unit Sales
Add Desired Units of Ending Finished Goods Inventory
Totals Needs
Less Units of Beginning Finished Goods Inventory
Required Production in Units

Answer 1

Production Budget
For the Year Ended
(in Units)
	June	July	August	September
Budgeted Unit Sales	8,200	12,000	14,000	15,000
Add: Desired units of ending finished goods inventory (12,000*20/100); (14,000*20/100); (15,000*20/100)	2,400	2,800	3,000
Total Needs	10,600	14,800	17,000
Less: Units of Beginning Finished Goods Inventory (Last month's ending inventory will be he beginning inventory in current month)		2,400	2,800	3,000
Required Production in Units	10,600	12,400	14,200
The ending units of May is not given which will be used as beginning units in June and also the budgeted unit sales of October is not given to calculate the ending inventory in September at 20% to arrive the Total Needs. Thus, this production budget is useful for July and August months.