Morganton Company makes one product and it provided the following information to
ID: 2567868 • 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 9,600, 27,000, 29,000, and 30,000 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 4 pounds of raw materials. The raw materials cost $2.50 per pound.
e. Twenty five percent of raw materials purchases are paid for in the month of purchase and 75% in the following month.
f. The direct labor wage rate is $13 per hour. Each unit of finished goods requires two direct labor-hours.
11. If the company always uses an estimated predetermined plantwide overhead rate of s9 per direct labor-hour, what is the estimated unit product cost? (Round your answer to 2 decimal places.) 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 $9 per direct labor-hour? Ending finished goods inventory 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 $9 per direct labor-hour? Estimated cost of goods sold Estimated gross margin 14. What is the estimated total selling and administrative expense for July? l selling and administrative e 15. What is the estimated net operating income for July, if the company always uses an estimated predetermined plantwide overhead rate of $9 per direct labor-hour? Net operating incomeExplanation / Answer
Solution:
11) Unit Product Cost
Product Cost is the cost incurred in making the product. It includes the cost incurred on direct material, direct labor, variable manufacturing overhead and fixed manufacturing overhead.
It does not include selling and admin overhead costs.
Unit Product Cost
Cost per Unit
Direct materials (4 pounds of raw material needed per unit x $2.50 per pound)
$10
Direct labor (2 DLHs needed per unit x $13 per hour)
$26
Manufacturing Overhead per unit (2 DLHs per unit x $9 per DLH as given in the question)
$18
Unit Product Cost
$54
12) Estimated Finished Goods Inventory in dollar value at the end of July
July’s Estimated Finished Goods Inventory in units = 30% of the Following Month’s sale i.e. 30% of August Sales Unit
= 29,000 Units x 30%
= 8,700 Units
Value of Ending Finished Goods Inventory at the end of July = Ending Inventory Units x Unit Product Cost as calculated in Part 11
= 8,700 Units x $54
= $469,800
13) Estimated Goods Sold and Gross Margin for July
Estimated Cost of Goods Sold = $1,458,000
Estimated Gross Margin = $297,000
Working:
July Month
A.
Total Sales Revenue (27,000 units x $65)
$1,755,000
B.
Cost of Goods Sold
(Sales Units 27,000 Units x Unit Product Cost $54 as calculated in part 11)
$1,458,000
A-B
Gross Profit
$297,000
14) Total Selling and administrative expense for July = $109,200
Working:
$
A
Variable Selling and Administrative Expenses
(Units Sold in July 27,000 Units x $1.60 per unit sold)
$43,200
B
Fixed selling and administrative expense
$66,000
A+B
Total Selling and administrative expenses
$109,200
15) Net Operating Income for July Month = Gross Margin for July Month – Total Selling and Administrative Expenses for July month
= $297,000 - $109,200
= $187,800
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Unit Product Cost
Cost per Unit
Direct materials (4 pounds of raw material needed per unit x $2.50 per pound)
$10
Direct labor (2 DLHs needed per unit x $13 per hour)
$26
Manufacturing Overhead per unit (2 DLHs per unit x $9 per DLH as given in the question)
$18
Unit Product Cost
$54
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