Luchini Corporation makes one product and it provided the following information

ID: 2435709 • Letter: L

Question

Luchini Corporation makes one product and it provided the following information to help prepare the master budget for the next four months of operations:

The budgeted selling price per unit is $111. Budgeted unit sales for April, May, June, and July are 7,100, 10,100, 13,300, and 14,000 units, respectively. All sales are on credit.

Regarding credit sales, 40% are collected in the month of the sale and 60% in the following month.

The ending finished goods inventory equals 10% of the following month's sales.

The ending raw materials inventory equals 30% of the following month’s raw materials production needs. Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost $5.00 per pound.

Regarding raw materials purchases, 40% are paid for in the month of purchase and 60% in the following month.

The direct labor wage rate is $18.00 per hour. Each unit of finished goods requires 2.9 direct labor-hours.

Variable manufacturing overhead is $7.00 per direct labor-hour. Fixed manufacturing overhead is zero.

The estimated finished goods inventory balance at the end of May is closest to:

Explanation / Answer

Solution: $129,675

Working:

Estimated unit product cost :

Amount

Working

Direct materials

25.00

5 pounds * $5.00 per pound

Direct labor

52.20

2.9 hours * $18.00 per hour

Manufacturing OH

20.30

2.9 hours * $7.00 per hour

Unit product cost

97.50

Computation of estimated finished goods inventory balance :

Ending finished goods inventory: 13,300 units * 10% = 1,330 units

Unit product cost : 97.50

Ending finished goods inventory : 97.50 * 1,330 = $129,675