Morganton Company makes one product and it provided the following information to

Question

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 $60. Budgeted unit sales for June, July, August, and September are 9,800, 29,0 00, 31,000, and 32,000 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 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 unto finished goods requires 4 pounds of raw materials. The raw materials cost $2.50 per pound e Thirty percent of raw materials purchases are paid for in the month of purchase and 70% in the following month. f. The direct labor wage rate is $15 per hour. Each unit of finished goods requires two direct labor-hours. 9. The variable selling and administrative expense per unit sold is $1.80. The fixed selling and administrative expense p er month is $68,000 13. What is the estimated cost of goods sold and gross margin for July? Estimated cost of goods sold Estimated gross margin

Explanation / Answer

Solution:

First of all we need to find out the product unit cost

Calculation of Product Unit Cost

Raw materials cost per unit

(4 Pounds needed per unit x $2.50 per pound)

$10.00

Labor Cost per unit

(2 DLHs needed per unit x $15)

$30.00

Product Unit Cost

$40.00

Now, we can calculate the cost of goods sold for July month

Estimated Cost of Goods Sold for July = Unit Sold in July 29,000 Units x Unit Product Cost $40 = $1,160,000

Estimated Gross Margin for July = Total Sales of July 29,000 Units x $60 – Cost of Goods Sold of July $1,160,000

= $1,740,000 - $1,160,000

= $580,000

Note -- Selling and administrative expenses are not considered in Unit Product Cost because it is not the part of production.

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Calculation of Product Unit Cost

Raw materials cost per unit

(4 Pounds needed per unit x $2.50 per pound)

$10.00

Labor Cost per unit

(2 DLHs needed per unit x $15)

$30.00

Product Unit Cost

$40.00

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