Question

Morganton Company makes one product and it provided the following information to help prepare the master budget: The budgeted selling price per unit is $60. Budgeted unit sales for June, July, August, and September are 8,600, 17,000, 19,000, and 20,000 units, respectively. All sales are on credit. Thirty percent of credit sales are collected in the month of the sale and 70% in the following month. The ending finished goods inventory equals 25% of the following month’s unit sales. 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 $2.40 per pound. Thirty five percent of raw materials purchases are paid for in the month of purchase and 65% in the following month. The direct labor wage rate is $14 per hour. Each unit of finished goods requires two direct labor-hours. The variable selling and administrative expense per unit sold is $1.80. The fixed selling and administrative expense per month is $67,000. 8. If 96,250 pounds of raw materials are needed to meet production in August, what is the estimated accounts payable balance at the end of July?

Answer 1

We need to estimate the production and raw material required for July month
Calculation of number of units to be produced in July month
Estimated sales	17000
Add: Desired ending inventory	4750	19000*25%
Total required finished goods inventory	21750
Less: Beginning inventory	4250	17000*25%
Estimated production	17500
Calculation of raw material budget for July month
Estimated production	17500
Raw material required per unit	5
Raw material required for production	87500	17500*5
Add: Desired ending inventory	9625	96250*10%
Total raw material required	97125
Less: Beginning inventory	8750	87500*10%
Estimated raw material required	88375
Cost per pound	$2.40
Budgeted raw material cost	$212,100
At end of July, accounts payable balance would be 65% of current month cost which is paid next month
Accounts payable balance	$137,865	212100*65%
Thus, estimated accounts payable balance at end of July is $137,865.