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: The budgeted selling price per unit is $70. Budgeted unit sales for June, July, August, and September are 9,700, 28,000, 30,000, and 31,000 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 4 pounds of raw materials. The raw materials cost $2.50 per pound. Thirty percent of raw materials purchases are paid for in the month of purchase and 70% in the following month. The direct labor wage rate is $15 per hour. Each unit of finished goods requires two direct labor-hours. The variable selling and administrative expense per unit sold is $1.70. The fixed selling and administrative expense per month is $67,000.

5. If 120,800 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 JULY AUG Budgeted Sales Units 28,000 30,000 Add: Desired Ending Finished inventory 6,000 6,200 Total Needs 34,000 36,200 Less: Beginning Finished Inventory 5,600 6,000 Required Production in units 28,400 30,200 RAW MATERIAL PURCHASE BUDGET JULY AUG Budgeted Sales units 28,400 30,200 Raw material needed per unit 4 4 Total Production needs 113600 120800 Add: Desired Ending Inventory 12,080 Total needs 125,680 Less: Beginning Inventory 11,360 Purchase Units in pounds 114,320 Cost price per unit 2.50 Budgeted Purchase in $ 285,800 Hence, the Pounds of Material to be purchased in July is 114,320 pounds

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