Question

[The following information applies to the questions displayed below.]

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 8,800, 19,000, 21,000, and 22,000 units, respectively. All sales are on credit.

2. Thirty percent of credit sales are collected in the month of the sale and 70% 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 $2.40 per pound.

5. Twenty five percent of raw materials purchases are paid for in the month of purchase and 75% in the following month.

6. The direct labor wage rate is $12 per hour. Each unit of finished goods requires two direct labor-hours.

7. The variable selling and administrative expense per unit sold is $2.00. The fixed selling and administrative expense per month is $69,000.

Required:

1. What are the budgeted sales for July?

2. What are the expected cash collections for July?

3. What is the accounts receivable balance at the end of July?

4. According to the production budget, how many units should be produced in July?

5. If 106,000 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?

6. If 106,000 pounds of raw materials are needed to meet production in August, what is the estimated cost of raw materials purchases for July?

7. In July what are the total estimated cash disbursements for raw materials purchases? Assume the cost of raw material purchases in June is $140,352.

8. If 106,000 pounds of raw materials are needed to meet production in August, what is the estimated accounts payable balance at the end of July?

9. If 106,000 pounds of raw materials are needed to meet production in August, what is the estimated raw materials inventory balance at the end of July?

10. What is the total estimated direct labor cost for July assuming the direct labor workforce is adjusted to match the hours required to produce the forecasted number of units produced?

11. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated unit product cost? (Round your answer to 2 decimal places.)

12. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated finished goods inventory balance at the end of July?

13. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated cost of goods sold and gross margin for July?

14. What is the estimated total selling and administrative expense for July?

15. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated net operating income for July?

Answer 1

Particular	Amount
Finished Goods Produced in July	19,400 units
Raw materials required for Production (19,400 * 5)	97,000 pounds
Add: Ending Raw Material ( 10% * 106,000)	10,600 pounds
Less: Beginning Really Material ( 10% * 97,000)	(9,700) pounds
Raw Materials purchased	97,900 pounds

5) 97,900 pounds.

6) Cost of Raw material to be purchase = 97,900 * $ 2.40 = $ 234,960

7) Cash disbursements for raw materials = $ 164,004

Particular	Amount
75% of Cost of Raw Materials purchased ( 75% * $ 140,352)	$ 105,264
25% of Cost of materials to be purchase ( 25% * $ 234,960)	$ 58,740
Total Cash Disbursements	$ 164,004

8) Accounts payable in July = 75% * $ 234,960 = $ 176,220

9)

Production budget for July - Morganton Company
Particulars	July
Budgeted sales units	19000
Add: Desired ending inventory (20% of following month sale)	4200
Less: Beginning inventory	3800
Budgeted Production	19400

Material Purchase budget for July - Morganton Company
Particulars	Amount
Production units	19400
Material required per unit (In Pound)	5
Total material required for July	97000
Add: Desired ending inventory (106,000*10%)	10600
Less: Beginning inventory	9700
Raw Material to be purchased (In Pound)	97900

Estimated Raw material inventory balance for July- Morganton Company
Particulars	Amount
Estimated raw material inventory for July (In Pound)	10600
Cost per pound	$2.40
Estimated raw material inventory balance	$25,440.00

10)

Estimated direct labor cost for July - Morganton Company
Particulars	Amount
Production units	19400
direct labor hours per unit	2
Total direct labor hours	38800
Wage rate per hour	$12.00
Estimated direct labor cost	$465,600.00

12)

Estimated unit product cost - Morganton Company
Particulars	Per unit
Direct Material (5*$2.40)	$12.00
Direct labor (2*$12)	$24.00
Overhead (2*$10)	$20.00
Estimated unit product cost	$56.00

Estimated finished goods inventory balance for July- Morganton Company
Particulars	Amount
Estimated finished goods inventory for July (In Units)	4200
Unit Product cost	$56.00
Estimated finished goods inventory balance	$235,200.00

13)

Computation of estimated cost of goods sold and gross margin for July- Morganton Company
Particulars	Amount
Estimated sales (19000*$70)	$1,330,000.00
The estimated cost of goods sold (19000 * $56)	$1,064,000.00
Estimated Gross Margin	$266,000.00

15)

Computation of estimated selling and administrative expenses for July- Morganton Company
Particulars	Amount
Estimated variable selling and administrative expenses (19000*$2)	$38,000.00
Estimated fixed selling and administrative expenses	$69,000.00
Estimated total selling and administrative expenses	$107,000.00

Computation of estimated net operating income for July- Morganton Company
Particulars	Amount
Estimated Gross Margin	$266,000.00
Estimated selling and administrative expenses	$107,000.00
Estimated net operating income	$159,000.00