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

Question

[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: The budgeted selling price per unit is $65. Budgeted unit sales for June, July, August, and September are 8,200, 12,000, 14,000, and 15,000 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 finished goods inventory equals 20% of the following month’s unit sales. The ending raw materials inventory equals 10% of the following month’s raw materials production needs. Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost $2.00 per pound. Twenty percent of raw materials purchases are paid for in the month of purchase and 80% in the following month. 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 $1.30. The fixed selling and administrative expense per month is $62,000.

6. What is the estimated cost of raw materials purchases for July?

7. In July what are the total estimated cash disbursements for raw materials purchases? Assume the cost of raw material purchases in June is $93,040.

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?

Explanation / Answer

PRODUCTION BUDGET JULY AUG SEP Budgeted Sales Units 8,200 12,000 14,000 Add: Desired Ending Finished inventory 2,400 2,800 Total Needs 10,600 14,800 Less: Beginning Finished Inventory 1,640 2,400 Required Production in units 8,960 12,400 RAW MATERIAL PURCHASE BUDGET JULY AUG Budgeted Production units 8,960 12,400 Raw material per unit 5 5 Total Production needs 44,800 62,000 Add: Desired Ending Inventory 6,200 Total needs 51,000 Less: Beginning Inventory 4,480 Purchase Units 46,520 Cost price per unit 2.00 Budgeted Purchase in $ 93,040 LABOUR COST BUDGETS July Units to be produced 8,960 Labour required per unit 2 Labour hours 17920 Labuor Rate per hour 13 Budgeted Labour cost in $ 232,960 Req 6: Cost of raw material purchased in July:93040 Req 7: Cash disbursement in July: June month purchase (93040*80%) 74432 July month (93040*20%) 18608 Total cash disbursals 93040 Req 8 Balance in Accounts payable: July sales (80% of 93040) 74432 Req 9 Raw material inventory (desired inventory in Jul 31): $6200 Req 10. Estimated labour c cost for july: $ 232960

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