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 $70. Budgeted unit sales for June, July, August, and September are 9,100, 22,000, 24,000, and 25,000 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 4 pounds of raw materials. The raw materials cost $2.50 per pound.
5. Forty percent of raw materials purchases are paid for in the month of purchase and 60% 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 $1.70. The fixed selling and administrative expense per month is $61,000.

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 96,800 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?

6. If 96,800 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 $127,520.

8. If 96,800 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 96,800 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 $12 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 $12 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 $12 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 $12 per direct labor-hour, what is the estimated net operating income for July?

Answer 1

1)
BUDGETED SELLING PRICE		$                  70
BUDGETED UNITS IN JULY		22000
BUDGETED SALES		$    1,540,000
2)
SALES
CASH 40%		$        616,000
CREDIT 60 % OF PREVIOUS MONTH		$        382,200
RAW MATERIAL
RAW MATERIAL PURCHASES COST
40 % PAID NOW	JULY $260900	$        104,360
60 % PREVIOUS MONTH	JUNE $ 159980	$          95,988
LABOR
$12 PER HOUR * (24980 * 2)		$        599,520
VARIABLE EXPENSES		$          37,400
$1.70 * 22000
FIXED EXPENSES		$          61,000
CASH INFLOW		$          99,932
3)
SALES IN JULY	$      1,540,000
60 % OUTSTANDING	$          924,000

4) 2980 UNITS SHOULD BE PRODUCED

	JUNE	JULY	AUGUST	SEP
SALES UNIT	9100	22000	24000	25000
CLOSING UNITS	4400	4800	5000
20% OF NEXT MONTH SALE
OPENING UNITS		1820	4400	4800
20% OF PREVIOUS MONTH SALE
FINISHED GOODS REQUIRED	13500	24980	24600	20200
SALES + CLOSING - OPENING
RAW MATERIAL REQUIRED	54000	99920	98400	80800
FINISHED GOODS REQUIRED * 4
CLOSING UNITS	9992	9840	8080
10% OF NEXT MONTH NEEDS
OPENING UNITS		5400	9992	9840
10% OF PREVIOUS MONTH NEEDS
RAW MATERIAL PURCHASES	63992	104360	96488	70960
REQUIRED+ CLOSING - OPENING

SHOW FORMULA IN EXCEL

	JUNE	JULY	AUGUST	SEP
SALES UNIT	9100	22000	24000	25000
CLOSING UNITS	=20%*G10	=20%*H10	=20%*I10
20% OF NEXT MONTH SALE
OPENING UNITS		=F10*20%	=G10*20%	=H10*20%
20% OF PREVIOUS MONTH SALE
FINISHED GOODS REQUIRED	=F10+F11-F14	=G10+G11-G14	=H10+H11-H14	=I10+I11-I14
SALES + CLOSING - OPENING
RAW MATERIAL REQUIRED	=F17*4	=G17*4	=H17*4	=I17*4
FINISHED GOODS REQUIRED * 4
CLOSING UNITS	=10%*G20	=10%*H20	=10%*I20
10% OF NEXT MONTH NEEDS
OPENING UNITS		=10%*F20	=10%*G20	=10%*H20
10% OF PREVIOUS MONTH NEEDS
RAW MATERIAL PURCHASES	=F20+F23-F26	=G20+G23-G26	=H20+H23-H26	=I20+I23-I26
REQUIRED+ CLOSING - OPENING