Morganton Company makes one product and it provided the following information to
ID: 2558228 • Letter: M
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 8,800, 19,000, 21,000, and 22,000 units, respectively.
All sales are on credit. Thirty percent of credit sales are collected in the month of the sale and 70% 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 $2.40 per pound.
Twenty five percent of raw materials purchases are paid for in the month of purchase and 75% in the following month.
The direct labor wage rate is $12 per hour.
Each unit of finished goods requires two direct labor-hours. The variable selling and administrative expense per unit sold is $2.00. The fixed selling and administrative expense per month is $69,000.
4. According to the production budget, how many units should be produced in July?
5. If 106,000 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. In July what are the total estimated cash disbursements for raw materials purchases? Assume the cost of raw material purchases in June is $140,352.
Explanation / Answer
4. According to the production budget, how many units should be produced in July?
Production in July = July sales in units + 20% of August sales in units - 20% of July sales in units
= 19,000 + (21,000*20%) - (19,000*20%)
= 19,000 + 4,200 - 3,800
= 19,400 units
5. If 106,000 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?
Pounds of raw materials to be purchased in July = Pounds required for July production + 10% of Pounds required for August production - 10% of pounds required for July production
= (19,400*5) + (106,000*10%) - (19,400*5*10%)
= 97,000 + 10,600 - 9,700
= 97,900
6. What is the estimated cost of raw materials purchases for July?
Estimated cost of raw materials purchases for July = Pounds to be purchased * 2.4 per pound
= 97,900 * 2.4
= 234,960
7. In July what are the total estimated cash disbursements for raw materials purchases? Assume the cost of raw material purchases in June is $140,352
Total estimated cash disbursements for raw materials purchases in july = 25% of July purchases + 75% of june purchases
= (234,960*25%) + (140,352*75%)
= 58,740 + 105,264
= 164,004
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