Question

[The following information applies to the questions displayed below.] Morganton Company makes one product and it provided the following information to help prepare the master budget:

a) The budgeted selling price per unit is $65. Budgeted unit sales for June, July, August, and September are 8,200, 12,000, 14,000, and 15,000 units, respectively. All sales are on credit.

b) Forty percent of credit sales are collected in the month of the sale and 60% in the following month.

c) The ending finished goods inventory equals 20% of the following month’s unit sales.

d) 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.

e) Twenty percent of raw materials purchases are paid for in the month of purchase and 80% in the following month.

f) The direct labor wage rate is $13 per hour. Each unit of finished goods requires two direct labor-hours.

g)The variable selling and administrative expense per unit sold is $1.30. The fixed selling and administrative expense per month is $62,000.

1) In July what are the total estimated cash disbursements for raw materials purchases? Assume the cost of raw material purchases in June is $93,040; and 71,000 pounds of raw materials are needed to meet production in August.

Total cash disbursements:

2) 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?

Total direct labor cost:

Answer 1

1) In July what are the total estimated cash disbursements for raw materials purchases? Assume the cost of raw material purchases in June is $93,040; and 71,000 pounds of raw materials are needed to meet production in August.

June Purchases ($93040 * 80%)	$74432
July Purchases ($125800 * 20%)	$25160
Total Cash Disbursement	$99592

July Purchase = Material required for production + Ending Inventory – Beginning Inventory

Material required for production = (July sale + Ending Inventory – Beginning Inventory) * 5 pound

      = (12000 + [14000 * 20%] – [12000 * 20%]) * 5 = 62000

62000 + (71000 * 10%) – (62000 * 10%) = 62900 pound

62900 pound * $2 = $125800

2) 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?

Required Production in units	62000
Direct Labor hours per unit	2
Total Direct Labor hours needed (a)	124000
Direct Labor cost per hour (b)	$13
Total Direct Labor cost (a X b)	$1612000