Morganton Company makes one product and it provided the following information to

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:

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.

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

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.

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

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

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

If 129,200 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?

Explanation / Answer

PRODUCTION BUDGET UNITS Expected production Units in July: Expected Sales units in July 30000 Add: Desired Ending Inventory 9600 (32000 units of Aug sales *30%) Total Needs Less: Desired Beginning Inventory 9000 (30000 Units of July month *30%) Pproduction expected in July 30600 RAW MATERIAL PURCHASE BUDGET POUNDS Expected Production in July 30600 Raw material required per unit produced 4 Total Production needs 122400 Add: Desired Ending inventory 25840 (129200 pounds *20%) Total needs 148240 Less: Desired Beginning Inventory 24480 (122400 pounds *20%) Raw material Purchase budgeted in pounds 123760

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