Question

he Foundational 15 [LO8-2, LO8-3, LO8-4, LO8-5, LO8-7, LO8-9, LO8-10]

[The following information applies to the questions displayed below.]

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 $65. Budgeted unit sales for June, July, August, and September are 9,600, 27,000, 29,000, and 30,000 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 30% of the following month’s unit sales.
4. 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.
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 $13 per hour. Each unit of finished goods requires two direct labor-hours.
7. The variable selling and administrative expense per unit sold is $1.60. The fixed selling and administrative expense per month is $66,000.
   9. If 117,200 pounds of raw materials are needed to meet production in August, what is the estimated raw materials inventory balance at the end of July? Raw material inventory balance
   

Answer 1

Solution 9:

Estimated Raw material inventory balance for July- Morganton Company
Particulars	Amount
Estimated raw material inventory for July (In Pound) (117200*20%)	23440
Cost per pound	$2.50
Estimated raw material inventory balance	$58,600.00

Solution 10:

Production budget for July - Morganton Company
Particulars	July
Budgeted sales units	27000
Add: Desired ending inventory (30% of following month sale)	8700
Less: Beginning inventory	8100
Budgeted Production	27600

Estimated direct labor cost for July - Morganton Company
Particulars	Amount
Production units	27600
direct labor hours per unit	2
Total direct labor hours	55200
Wage rate per hour	$13.00
Estimated direct labor cost	$717,600.00

Solution 11:

Estimated unit product cost - Morganton Company
Particulars	Per unit
Direct Material (4*$2.50)	$10.00
Direct labor (2*$13)	$26.00
Overhead (2*$9)	$18.00
Estimated unit product cost	$54.00

Solution 12:

Estimated finished goods inventory balance for July- Morganton Company
Particulars	Amount
Estimated finished goods inventory for July (In Units)	8700
Unit Product cost	$54.00
Estimated finished goods inventory balance	$469,800.00

Solution 13:

Computation of estimated cost of goods sold and gross margin for July- Morganton Company
Particulars	Amount
Estimated sales (27000*$65)	$1,755,000.00
Estimated cost of goods sold (27000 * $54)	$1,458,000.00
Estimated Gross Margin	$297,000.00

Solution 14:

Computation of estimated selling and administrative expenses for July- Morganton Company
Particulars	Amount
Estimated variable selling and administrative expenses (27000*$1.60)	$43,200.00
Estimated fixed selling and administrative expenses	$66,000.00
Estimated total selling and administrative expenses	$109,200.00

Solution 15:

Computation of estimated net operating income for July- Morganton Company
Particulars	Amount
Estimated Gross Margin	$297,000.00
Estimated selling and administrative expenses	$109,200.00
Estimated net operating income	$187,800.00