Question

Morganton Company makes one product and it provided the following information to help prepare the master budget:

1. The budgeted selling price per unit is $70. Budgeted unit sales for June, July, August, and September are 8,400, 10,000, 12,000, and 13,000 units, respectively. All sales are on credit.
2. Forty percent of credit sales are collected in the month of the sale and 60% in the following month.
3. The ending finished goods inventory equals 20% of the following month’s unit sales.
4. 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.
5. Thirty percent of raw materials purchases are paid for in the month of purchase and 70% in the following month.
6. The direct labor wage rate is $15 per hour. Each unit of finished goods requires two direct labor-hours.
7. The variable selling and administrative expense per unit sold is $1.80. The fixed selling and administrative expense per month is $60,000.

Answer the following: (show as much work as possible)

1. What are the budgeted sales for July?

2. What are the expected cash collections for July?

3. What is the accounts receivable balance at the end of July?

4. According to the production budget, how many units should be produced in July?

5.  If 61,000 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?

6. If 61,000 pounds of raw materials are needed to meet production in August, 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 $88,880.

8. If 61,000 pounds of raw materials are needed to meet production in August, what is the estimated accounts payable balance at the end of July?

9. If 61,000 pounds of raw materials are needed to meet production in August, 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?

11.  If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated unit product cost?

12. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated finished goods inventory balance at the end of July?

13. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, 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. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated net operating income for July?

Thank you!

Answer 1

Note 1. Statement showing cash collection from debtors

Particular	June	July	Aug	Sep
Sales Volume	588000	700000	840000	910000
Cash collection in the month of sales	235200	280000	336000	364000
Cash collection in the following month of sales		352800	420000	504000
Total cash collection	235200	632800	756000	868000

Note 2 Statement showing budgeted units produced

Particular	June	July	Aug	Sep
units sold(a)	8400	10000	12000	13000
Opening stock units		2000	2400	2600
Add:Produced units	10400	10400	12200	10400
Less:Closing stock units(20% of following month sale)	2000	2400	2600	-
Units sold	8400	10000	12000	13000

note 3. Statement showing Raw materials purchased

Particular	June	July	Aug	Sep
Produced units	10400	10400	12200	10400
Raw Material for units produced	52000	52000	61000	52000
Add:Closing raw material @ 10% of following month production	5200	6100	5200
Less: opening raw material	0	5200	6100	5200
Purchase of raw materials	57200	52900	60100

1. Budgeted sales for July= $ 700000

2. Expected cash collection for July = $ 632800

3. Account Receivable balance at the end of july = 60% of july month sale

= 700000*60% = $ 420000

4. As per production budget 10400 units should be produced.

5. 52900 pounds of raw material are needs to be purchased in July

6. 52900 pounds of raw material are needs to be purchased in July @ $ 2 per pound i.e. Estimated cost of raw material purchased = $ 105800.

7. Total estimated cash disbursement for raw material purchase in the month of sale

= 30% of july month purchase + 70% of june month purchase

= $105800*30% + $88880*70%

= $ 93956

8. estimated amount of payable for purchase of raw material in the month of july = 70% of purchase in july

= (52900*$2)*70% = $74060

9.Estimated Raw material inventory balance at the end of july = 6100 pound

10.Total estimated cost of direct labor for the month of july = unit produced* direct labor cost* hour per unit

= 10400*15*2

= $312000

11.Estimated unit product Cost per unit

Direct material = 5*$2 = 10

Direct labor = $15*2 hr =30

Variable mfr oh = $10*2 hr =20

Total cost p u =$60

12.Estimated cost of finished goods for the month of july = 2400*$60 = $ 144000

13. Total cost of goods sold= (total production cost pu + selling and administration cost pu)*no of units sold

= ($60+$1.8)*10000

= $ 618000

Gross Profit margin = estimated sales- prime cost of goods sold

= $ 10000*$70 - ($10+$30)*10000

= $30000

14. Estimated selling and administrative exp for july = $1.8*10000 = $18000

15. Estimated net operating income

Sales - operating cost = $700000-($61.8*10000)

= $ 82000