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:

The budgeted selling price per unit is $65. Budgeted unit sales for June, July, August, and September are 9,300, 24,000, 26,000, and 27,000 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 30% of the following month’s unit sales.

The ending raw materials inventory equals 20% of the following month’s raw materials production needs. Each unit of finished goods requires 4 pounds of raw materials. The raw materials cost $2.50 per pound.

Thirty percent of raw materials purchases are paid for in the month of purchase and 70% in the following month.

The direct labor wage rate is $14 per hour. Each unit of finished goods requires two direct labor-hours.

The variable selling and administrative expense per unit sold is $1.90. The fixed selling and administrative expense per month is $63,000.

A. What are the budgeted sales for July?

B. What are the expected cash collections for July?

C. What is the accounts receivable balance at the end of July?

D. According to the production budget, how many units should be produced in July?

E. If 105,200 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?

Explanation / Answer

ReqA:

Budgeted sales unit for July   24,000 units

Selling price per unit $ 65 per unit

Budgeted sales in $ ( 24,000 *65) = $1560,000

ReqB: Expected cash collections for July:

Collections for June month(9300*65 *60%)         $ 362,700

Collection for July month sales(24000*65*40%) $624,000

Toytal collections for July month                        $ 986,700

ReqC: Accounts receivable balance at the end of July:

60% July month sales collecetd next month, so balance of Accounts receivable (1560,000*60%) = $ 936,000

ReqD: Production Units to ebe produced in July:

Expected sales unit in July   24000 units

Add: Desired Closing inventory(30% of Aug month sales i.e. 26000) = 7800 units

Less: Desired opening inventory(30% of July month i.e. 24000) = 7200 units

Budgeted Production units of July        24,600 units

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