Morganton Company makes one product and it provided the following information to
ID: 2448326 • Letter: M
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: a. The budgeted selling price per unit is $65. Budgeted unit sales for June, July, August, and September are 8,400, 15,000, 17,000, and 18,000 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 30% of the following month’s unit sales. d. The ending raw materials inventory equals 20% of the following month’s raw materials production needs. Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost $2.50 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 $12 per hour. Each unit of finished goods requires two direct labor-hours. g. The variable selling and administrative expense per unit sold is $1.60. The fixed selling and administrative expense per month is $65,000.
1. What are the budgeted sales for July?
2. What are the expected cash collections for July?
3. What is the accounts receivable balance at the end of July?
4. According to the production budget, how many units should be produced in July?
5. If 86,500 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?
6. What is the estimated cost of raw materials purchases for July?
7. If the cost of raw material purchases in June is $142,800, what are the estimated cash disbursements for raw materials purchases in July?
8. What is the estimated accounts payable balance at the end of July?
9. What is the estimated raw materials inventory balance at the end of July?
10. What is the total estimated direct labor cost for July assuming the direct labor workforce is adjusted to match the hours required to produce the forecasted number of units produced?
11. If the company always uses an estimated predetermined plantwide overhead rate of $7 per direct labor-hour, what is the estimated unit product cost?
12. What is the estimated finished goods inventory balance at the end of July, if the company always uses an estimated predetermined plantwide overhead rate of $7 per direct labor-hour?
13. 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 $7 per direct labor-hour?
14. What is the estimated total selling and administrative expense for July
15. What is the estimated net operating income for July, if the company always uses an estimated predetermined plantwide overhead rate of $7 per direct labor-hour?
Explanation / Answer
June July August September a) Budgeted Units 8400 15000 17000 18000 Selling price 65 65 65 65 Revenue 546000 975000 1105000 1170000 b) Cash collected for current month - 30% 163800 292500 331500 351000 Cash collected for previous month 382200 682500 773500 Total Cash Collected 163800 674700 1014000 1124500 c) closing finished goods inventory - 30% of following months sales 4500 5100 5400 Finished goods required Sales units for the month 8400 15000 17000 18000 Add : closing finished goods 4500 5100 5400 0 Finished goods needed 12900 20100 22400 18000 Less : opening stock 4500 5100 5400 Finished goods produced 12900 15600 17300 12600 d) Raw material required for per unit finished good 5 5 5 5 Raw material required 64500 78000 86500 63000 closing stock of Raw material required 20% of following months production 15600 17300 12600 0 Raw material required 80100 95300 99100 63000 Less : opening stock 15600 17300 12600 Raw material needed 80100 79700 81800 50400 Cost of Raw material 2.5 2.5 2.5 2.5 Value of Raw material purchased 200250 199250 204500 126000 e) Current month purchases paid - 30% 60075 59775 61350 37800 Previous months purchases paid - 70% 140175 139475 143150 f) Direct labor hours required per unit of finished goods 2 2 2 2 Direct labor hours required 25800 31200 34600 25200 Cost per direct hour 12 12 12 12 Cost of direct labor 309600 374400 415200 302400 g) Variable selling and administrative expenses per unit 1.6 1.6 1.6 1.6 Value of variable selling and distribution expense 20640 24960 27680 20160 Fixed selling and administrative expenses 65000 65000 65000 65000 1. The budgeted sales for July is 15000 units @ 65 per unit = 975000 ( Refer a above) 2. Expected cash collections for July is $ 674700 ( refer b above) 3. Accounts receivable balance at end of July is Credit sales for July = 975000 Less 30% Collected in July = 292500 Balance outstanding = 682500 Hence accounts receivable balance at end of July is 682500 4. Number of units produced in July is 15600 units ( Refer c above) 5. If 86500 pounds of raw material are required in August, raw materials purchased in July is 79700 pounds ( refer d above) 6. The estimated cost of raw material for July is 199250 ( refer d above) 7. If cost of raw material purchased in June is 142800 , then cash disbursed in July for purchase in June is 70% of 142800 = 99960 8. The estimated accounts payable for July is 70% of purchase of July = 70% of 199250 =139475 ( refer d above) 9. Inventory raw material for July is 17300 units ( refer d above) 10. the expected labor cost for July is 374400 ( refer f above) 11. Unit product cost = Raw material cost per unit = 5 * 2.5 = 12.5 12.50 Direct labour cost = 2 * 12 = 24 24.00 Variable selling and administrative cost = 1.60 1.60 Manufacturing overhead = 7 *2 14.00 Total product cost 52.10 12. Inventory balnce at end of July = closing inventory of July * product cost per unit 5100 * 52.10 = 265710 13 Estimated cost of goods sold ( July) = Sale units of July * product cost per unit = 15000 * 52.50 787500 Gross Margin for July = Sales for July - Cost of goods sold for July = 975000 - 787500 = 187500 14. Total selling and administrative expenses for July = Variable 24960 Fixed 65000 Total 89960 15. Net Income = Gross Income - Fixed expenses = 187500 -65000 = 122500
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