Morganton Company makes one product and it provided the following information to
ID: 2558287 • 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.
12. What is the estimated finished goods inventory balance at the end of July?
13. What is the estimated cost of goods sold and gross margin for July?
14. What is the estimated total selling and administrative expense for July?
15. What is the estimated net operating income for July?
Explanation / Answer
12. What is the estimated finished goods inventory balance at the end of July?
Finished goods inventory balance at the end of july = 20% of August sales in units
= 21,000 * 20%
= 4,200 units
13. What is the estimated cost of goods sold and gross margin for July?
Sales in july = 19,000 units * 70 per unit = 1,330,000
Cost of goods sold = Direct materials + Direct labour
= (19,000 * 5 * 2.4) + (19,000 * 2 * 12)
= 228,000 + 456,000
= 684,000
Gross margin = Sales - Cost of goods sold
= 1,330,000 - 684,000
= 646,000
14. What is the estimated total selling and administrative expense for July?
Selling and adminstrative expense for july = Variable + Fixed
= (2 * 19,000) + 69,000
= 107,000
15. What is the estimated net operating income for July?
Net operating income = Gross margin - Selling and administrative expense
= 646,000 - 107,000
= 539,000
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