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: 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. Forty percent of credit sales are collected in the month of the sale and 60% 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 $2.00 per pound. Twenty percent of raw materials purchases are paid for in the month of purchase and 80% in the following month. The direct labor wage rate is $13 per hour. Each unit of finished goods requires two direct labor-hours. The variable selling and administrative expense per unit sold is $1.30. The fixed selling and administrative expense per month is $62,000.

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 $93,040.

8. What is the estimated accounts payable balance at the end of July?

9. 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?

Answer 1

Solution 6:

Production budget for July - Morganton Company
Particulars	July	August
Budgeted sales units	12000	14000
Add: Desired ending inventory (20% of following month sale)	2800	3000
Less: Beginning inventory	2400	2800
Budgeted Production	12400	14200

Material Purchase budget for July - Morganton Company
Particulars	Amount
Production units	12400
Material required per unit (In Pound)	5
Total material required for july	62000
Add: Desired ending inventory (14200*5*10%)	7100
Less: Beginning inventory	6200
Raw Material to be purchased (In Pound)	62900

Computation of Estimated cost of raw material purchases- Morganton Company
Particulars	Amount
Raw Material to be purchased (In Pound)	62900
Raw material cost per pound	$2.00
Budgeted cost of raw material purchases	$125,800.00

Solution 7:

Cash disbursement for raw material purchase for July - Morganton Company
Particulars	Amount
Cash payment for june purchase ($93,040*80%)	$74,432.00
Cash payment for july purchase ($125,800*20%)	$25,160.00
Total cash disbursement for raw material purchase in july	$99,592.00

Solution 8:

Estimated accounts payable balance at the end of July = July purchases * 80% = $125,800*80% = $100,640

Solution 9:

Estimated Raw material inventory balance for July- Morganton Company
Particulars	Amount
Estimated raw material inventory for July (In Pound)	7100
Cost per pound	$2.00
Estimated raw material inventory balance	$14,200.00

Solution 10:

Estimated direct labor cost for July - Morganton Company
Particulars	Amount
Production units	12400
direct labor hours per unit	2
Total direct labor hours	24800
Wage rate per hour	$13.00
Estimated direct labor cost	$322,400.00