The Foundational 15 [LO8-2, LO8-3, LO8-4, LO8-5, LO8-7, L08-9, LO8-10] The follo

Question

The Foundational 15 [LO8-2, LO8-3, LO8-4, LO8-5, LO8-7, L08-9, LO8-10] 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 $60. Budgeted unit sales for June, July, August, and September are 9,500, 26,000, 28,000, and 29,000 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 25% of the following month's unit sales. d. The ending raw materials inventory equals 15% of the following month's raw materials production needs. Each unit of finished goods requires 4 pounds of raw materials. The raw materials cost $2.40 per pound. e. Forty percent of raw materials purchases are paid for in the month of purchase and 60% in the following month. f. The direct labor wage rate is $12 per hour. Each unit of finished goods requires two direct labor-hours. g. The variable selling and administrative expense per unit sold is $1.50. The fixed selling and administrative expense per month is $65,000.

Explanation / Answer

5)

Raw material purchase for July = Raw material required for production of july

  + Desired ending inventory [15% of raw material required for production of August]

  - Opening inventory [15% of raw material required for production of July]

=106,000 + (113000*15%)-(106,000*15%)

= 107,050 pounds

6)

Estimate cost of raw material purchases for July = Total Purchase (Qty) * 2.40 = 107,050*2.40= 256,920

7)Estimate cash disbursement in july for raw material purchase =40% of purchase of july + 60% of purchase of June

= (40% of 256,920) + (60% of 149,340)

= 102,768+89,604 = 192,372

8)

Estimate accounts payable balance at end of july = 60% of July's Purchase = 60%*256,920 = 154,152

9)

Estimate Raw Material Balance at end of July = 25% of production requirement of August = 25% * 113,000 = 28250

10)

Total estimated direct labour cost = #Finished goods production in July * 2 hr * 12 per hour = 26500*2*12 = 636,000

# Finished good production in July = Sales in July+Closing stock-opening stock = 26,000+(28000*25%)-(26000*25%)=26,500

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