Question

Morganton Company makes one product and it provided the following information to help prepare the master budget for its first four months of operations:

a. The budgeted selling price per unit is $65. Budgeted unit sales for June, July, August, and September are 9,900, 30,000, 32,000, and 33,000 units, respectively. All sales are on credit.

b. Forty percent of credit sales are collected in the month of the sale and 60% in the following month.

c. The ending finished goods inventory equals 30% of the following month’s unit sales.

d. The ending raw materials inventory equals 20% 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.

e. Forty percent of raw materials purchases are paid for in the month of purchase and 60% in the following month.

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

g. The variable selling and administrative expense per unit sold is $1.90. The fixed selling and administrative expense per month is $69,000.

1. 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?

Answer 1

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Working for Production Budget:			Column we need
		June	July	Aug	Sept	Total for Quarter
Budgeted No of Sale Units		9,900	30,000	32,000	33,000	71,900
Add: Desired Ending Inventory		9,000	9,600	9,900		9,900
Total Need		18,900	39,600	41,900		81,800
Less: Beginning Inventory			-9,000	-9,600		-
Budgeted Production		18,900	30,600	32,300		81,800
Final Answer:
Budgeted Production for July		30,600
Per unit Direct Labor Hour needed		2
Total Labor Hours Needed	30600*2	61,200
Wage Rate per Hour		$          12
Total Labor Cost for July	61200*12	$ 734,400