Question

Morganton Company makes one product and it provided the following information to help prepare the master budget for its four months of operations: (a) 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. (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 20% of the following month's unit sales. (d) 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 (e) Thirty-percent of raw materials purchases are paid for in the month of purchase and 70% in the following month. (f) The direct labor wage rate is $15 per hour. Each unit of finished goods requires two direct labor-hours (g) The variable selling and administrative expense per unit sold is $1.80. The fixed selling and administrative expense per month is $60,000. What is the estimated cost of goods sold and gross margin for July, if the company always uses an estimated predetermined plantwide overhead rate of $10 per direct labor-hour? $ Estimated cost of goods sold Estimated gross margin

Answer 1

Answer -

Estimated cost of goods sold	$600000
Estimated gross margin	$100000

Calculation:

1. Estimated sales revenue for July:

Here, the budgeted selling price per unit is $70 and budgeted unit sales for July are 10000 units.

So,

= (10000 units * $70) = $700000

2. Estimated cost of goods sold for July:

Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost $2 per pound.

So,

Direct material = (5 lbs. * $2) = $10

The direct labor wage rate is $15 per hour. Each unit of finished goods requires two direct labor-hours.

So,

Direct labor = (2 hrs. * $15) = $30

Estimated predetermined plant wide overhead rate of $10 per direct labor-hour.

So,

Overhead = (2 hrs. * $10) = $20

Therefore,

Cost of goods sold for each unit = Direct material + Direct labor + Overhead

Cost of goods sold for each unit = $10 + $30 + $20

Cost of goods sold for each unit = $60

Now,

Estimated cost of goods sold for July = (10000 units * $60) = $600000

3. Estimated gross margin for July:

Estimated gross margin = Estimated sales revenue - Estimated cost of goods sold

Estimated gross margin = $700000 - $600000

Estimated gross margin = $100000