Question

Required information

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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 $70. Budgeted unit sales for June, July, August, and September are 8,500, 16,000, 18,000, and 19,000 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. Thirty percent of raw materials purchases are paid for in the month of purchase and 70% 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 $1.70. The fixed selling and administrative expense per month is $66,000.

Answer 1

The master budget is prepared as follows:

Morganton Company-Master Budget
	June	July	August	September
Sales Budget
Budgeted Sales in Units	8,500	16,000	18,000	19,000
Selling Price per Unit	70	70	70	70
Budgeted Sales Revenue	$595,000	$1,120,000	$1,260,000	$1,330,000
Production Budget
Budgeted Sales in Units	8,500	16,000	18,000	19,000
Add Desired Ending Finished Goods Inventory	3,200 (16,000*20%	3,600 (18,000*20%)	3,800 (19,000*20%)	0
Total Production Required	11,700	19,600	21,800	19,000
Less Opening Finished Goods Inventory	1,700 (8,500*20%)	3,200 (16,000*20%)	3,600 (18,000*20%)	3,800 (19,000*20%)
Total Units to be Produced	10,000	16,400	18,200	15,200
Raw Material Budget
Total Units to be Produced	10,000	16,400	18,200	15,200
Material Required per Unit	5	5	5	5
Total Material Needed for Production	50,000	82,000	91,000	76,000
Add Desired Raw Material Ending Inventory	8,200 (82,000*10%)	9,100 (91,000*10%)	7,600 (76,000*10%)	0
Total Material Required	58,200	91,100	98,600	76,000
Less Opening Raw Material Inventory	5,000 (50,000*10%)	8,200 (82,000*10%)	9,100 (91,000*10%)	7,600 (76,000*10%)
Material to be Purchased (in Units)	53,200	82,900	89,500	68,400
Raw Material Cost per Pound	2	2	2	2
Total Cost of Raw Material Purchases	$106,400	$165,800	$179,000	$136,800
Direct Labor Budget
Total Units to be Produced	10,000	16,400	18,200	15,200
Direct Labor Hours per Unit	2	2	2	2
Total Direct Labor Hours Needed for Production	20,000	32,800	36,400	30,400
Direct Labor Rate per Hour	13	13	13	13
Total Direct Labor Cost	$260,000	$426,400	$473,200	$395,200
Selling and Administrative Budget
Budgeted Sales in Units	8,500	16,000	18,000	19,000
Variable Selling and Administrative Expense per Unit	1.70	1.70	1.70	1.70
Total Variable Selling and Administrative Expenses	14,450	27,200	30,600	32,300
Fixed Selling and Administrative Expenses	66,000	66,000	66,000	66,000
Total Selling and Administrative Expenses	$80,450	$93,200	$96,600	$98,300