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 for its four months of operations: (a) The budgeted selling price per unit is $70. Budgeted unit sales for June, July, August, and September are 8,200, 13,000, 15,000, and 16,000 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 unit of finished goods requires 5 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 $14 per hour. Each unit of finished goods requires two direct labor-hours. (g) The variable selling and administrative expense per unit sold is $1.40. The fixed selling and administrative expense per month is $63,000. What is the estimated raw materials inventory balance at the end of July?

Explanation / Answer

The estimated raw materials inventory balance at the end of July is computed as follows:

61,000 pounds × 10% = 6,100 pounds.

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