Question

The budgeted selling price per unit is $60. Budgeted unit sales for June, July, August, and September are 8,000, 11,000, 13,000, and 14,000 units, respectively. All sales are on credit. Thirty percent of credit sales are collected in the month of the sale and 70% in the following month. The ending finished goods inventory equals 25% 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 $2.20 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 $12 per hour. Each unit of finished goods requires two direct labor-hours. The variable selling and administrative expense per unit sold is $1.20. The fixed selling and administrative expense per month is $61,000.
5. If 66,250 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?
6. If 66,250 pounds of raw materials are needed to meet production in August, 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 $99,275; and 66,250 pounds of raw materials are needed to meet production in August.
8. If 66,250 pounds of raw materials are needed to meet production in August, what is the estimated accounts payable balance at the end of July?
9. If 66,250 pounds of raw materials are needed to meet production in August, what is the estimated raw materials inventory balance at the end of July?
10. What is the total estimated direct labor cost for July?
11. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $7 per direct labor-hour, what is the estimated unit product cost? (Round your answer to 2 decimal places.)
12. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $7 per direct labor-hour, what is the estimated finished goods inventory balance at the end of July?
13. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $7 per direct labor-hour, what is the estimated cost of goods sold and gross margin for July?
14.What is the estimated total selling and administrative expense for July?
15. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $7 per direct labor-hour, what is the estimated net operating income for July?

Answer 1

5. If 66,250 pounds of raw materials are needed to meet production in August, the pounds of raw materials purchased in July is 58,375 pounds.

6. If 66,250 pounds of raw materials are needed to meet production in August, the estimated cost of raw materials purchases for July is $128,425.

7. In July, the total estimated cash disbursements for raw materials purchases is $105,105.

8. If 66,250 pounds of raw materials are needed to meet production in August, the estimated accounts payable balance at the end of July is $102,740 ($128,425 x 80%).

9. If 66,250 pounds of raw materials are needed to meet production in August, the estimated raw materials inventory balance at the end of July is 6,625 pounds.

10. The total estimated direct labor cost for July is $276,000.

11. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $7 per direct labor hour, the estimated unit product cost? (Round your answer to 2 decimal places.)

Cost of raw materials per unit = $11 (5 x $2.20)

The estimated unit product cost under the above scenario is $18 ($11 +$7).

12. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $7 per direct labor hour, the estimated finished goods inventory balance at the end of July is $58,500 (3,250 x $18).

13. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $7 per direct labor hour, the estimated cost of goods sold and gross margin for July are as follows:

Estimated cost of goods sold = $198,000 (11,000 x $18)

Gross margin = $462,000 ($660,000 - $198,000)

14. The estimated total selling and administrative expense for July is $74,200 ($13,200 + $61,000).

15. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $7 per direct labor hour, the estimated net operating income for July is $387,800 ($462,000 - $74,200).

Data and Calculations:

Budgeted selling price per unit = $60

Sales Revenue Budget:

                                                    June          July           August   September

Budgeted unit sales                 8,000          11,000          13,000         14,000

Budgeted sales revenue  $480,000    $660,000    $780,000    $840,000

Cash Collections:

30% month of sale            $144,000   $198,000       $234,000   $252,000

70% following month                             336,000        462,000      546,000

Production Budget:

                                                    June          July           August   September

Budgeted unit sales                 8,000          11,000          13,000         14,000

Ending inventory (25%)            2,750          3,250            3,500

Units available for sale           10,750         14,250          16,500

Beginning inventory                2,000          2,750            3,250          3,500

Production units                      8,750          11,500           13,250

Materials Purchase Budget:

                                                       June            July           August  

Production units                            8,750         11,500         13,250

Materials requirements              43,750        57,500       66,250 (13,250x5)

Ending inventory                          5,750          6,625

Production materials available 49,500         64,125

Beginning inventory                    4,375           5,750         6,625

Purchase of materials               45,125         58,375

Purchase costs                      $99,275     $128,425

Payment for Purchase of Materials:

20%, month of purchase     $19,855        $25,685

80% following month                                $79,420

Cash disbursements                              $105,105

Direct Labor Budget:

                                                       June            July           August  

Production units                            8,750          11,500          13,250

Direct labor-hours required        17,500        23,000         26,500

Direct labor costs ($12/hr.)     $210,000   $276,000     $318,000

Budgeted unit sales                     8,000          11,000         13,000

Overhead Budget:

Variable selling and

 administrative expense          $9,600       $13,200       $15,600

Fixed selling and admin. exp.   61,000         61,000         61,000

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