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 8,400, 10,000, 12,000, and 13,000 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 $15 per hour. Each unit of finished goods requires two direct labor-hours.

7. The variable selling and administrative expense per unit sold is $1.80. The fixed selling and administrative expense per month is $60,000.

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 61,000 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?

6. If 61,000 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 $88,880.

8. If 61,000 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 61,000 pounds of raw materials are needed to meet production in August, what is the estimated raw materials inventory balance at the end of July?

Answer 1

SOLUTION

1. Budgeted sales for July = Budgeted units to be sold * Budgeted selling price per unit

= 10,000 * $70 = $70,000

2.

	Calculation	Amount ($)
Cash collection from:
June sales	8,400*$70*60%	352,800
July sales	10,000*$70*40%	280,000
Total cash collected		632,800

3. Accounts receivable = Budgeted sales for the month of July - Cash collections from sales made in the month of July

= $700,000 - $280,000 = $420,000

4.

Particulars	Units
Budgeted sales	10,000
Add: Ending inventory of finished goods (20%*12,000)	2,400
Total desired production	12,400
Less: Beginning inventory of finished goods (20%*10,000)	2,000
Total production required	10,400

** As per HOMEWORKLIB RULES, I have answered first 4 sub parts.