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 8,800, 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

Solution

Morganton Company

1. Determination of the budgeted sales for July:

Budgeted sales = budgeted sales price per unit x budgeted unit sales

Budgeted sales price = $70

Budgeted unit sales for July = 19,000

Budgeted Sales = $70 x 19,000 = $1,330,000

2. Determination of the expected cash collections for July:

Expected cash collections for July –

70% of credit sales of June collected in July = 70% x June Sales

= 70% x ($70 x 8,800 units) = $431,200

30% of credit sales of July collected in July = 30% x $1,330,000 = $399,000

Expected cash collections for July = $431,200 + $399,000 = $830,200

3. Determination of the accounts receivable balance at the end of July:

Accounts receivable balance at end of July = 70% of credit sales of July

= 70% x $1,330,000 = $931,000

Hence, accounts receivable balance at end of July = $931,000

4. Determination of the number of units to be produced in July:

Production = sales + ending inventory – beginning inventory

Sales = 19,000 units

Ending inventory = 20% of following month’s unit sales

= 20% x August unit sales = 20% x 21,000 = 4,200

Production requirement = 19,000 + 4,200 = 23,200

Less: beginning inventory –

Beginning inventory = 20% of July unit sales

= 20% x 19,000 =3,800

Number of units to be produced in July = 23,200 – 3,800 = 19,400 units

5. Determination of the pounds of raw materials to be purchased in July:

Production needs in July = 19,400 units

Raw materials per unit = 5 pounds

Production needs in pounds = 19,000 x 5 = 95,000 pounds

Add: ending raw materials inventory = 10% of August’s raw materials to meet production

=10% x 106,000 pounds = 10,600 pounds

Raw materials needed for production = 95,000 + 10,600 = 105,600

Less: beginning raw materials = 10% of 95,000 = 9,500

Hence, pounds of raw materials to be purchased in July = 105,600 – 9,500 = 96,100

6. Determination of estimated cost of raw material purchases in July:

Estimated cost of raw material purchases = cost per pound x purchase requirements

= $2.40 x 96,100 = $230,640

7. Estimated cash disbursements for raw material purchases in July:

Raw material purchases in June = $140,352

June purchases payable in July = 140,352 x 75% = $105,264

July purchases payable in July = 230,640 x 25% = $57,660

Estimated cash disbursements for raw material purchases in July = $105,264 + 57,660 = $162,924

8. Estimated accounts payable balance at the end of July:

Estimated accounts payable balance at end of July = 75% of raw material purchases in July

= 75% x 230,640 = $172,980

9. Estimated raw material inventory balance at the end of July:

Estimated raw material inventory balance at end of July = 10% of August raw material requirements in pounds

= 10% x 106,000 = 10,600 pounds

Answer 2

The first couple are correct and the last ones have the correct calculations you just plugged in the wrong values for some.