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 four months of operations:

The budgeted selling price per unit is $60. Budgeted unit sales for June, July, August, and September are 9,200, 23,000, 25,000, and 26,000 units, respectively. All sales are on credit.

The ending raw materials inventory equals 10% 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.

The direct labor wage rate is $13 per hour. Each unit of finished goods requires two direct labor-hours.

The variable selling and administrative expense per unit sold is $1.80. The fixed selling and administrative expense per month is $62,000.

Question

If the cost of raw material purchases in June is $131,040, what are the estimated cash disbursements for raw materials purchases in July?

(a)

The budgeted selling price per unit is $60. Budgeted unit sales for June, July, August, and September are 9,200, 23,000, 25,000, and 26,000 units, respectively. All sales are on credit.

(b) Thirty-percent of credit sales are collected in the month of the sale and 70% 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 4 pounds of raw materials. The raw materials cost $2.50 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 $13 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 $62,000.

Question

If the cost of raw material purchases in June is $131,040, what are the estimated cash disbursements for raw materials purchases in July?

Explanation / Answer

RAw materila required for July=23000*2.5*4=$230,000
Raw material required for finished goods=10% of (20% of august sales)
=10%*20%*25000=500 units
material cost required= 500*2.5*4=$5000
Total =230,000+5000=$235,000

Same calcualtion for jun has to be calculated:
RAw materila required for June=9200*2.5*4=$92,000
Raw material required for finished goods=10% of (20% of July sales)
=10%*20%*23000=460 units
material cost required= 460*2.5*4=$4600
Total=92,000+4600=$96,600

Cash disbursement=(.3* july need)+(.7*june needs)
=(.3*235,000)+(.7*96,600)=$138,120

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