Question

Morganton Company makes one product and it provided the following information to help prepare the master budget for its first four months of operations:
a. The budgeted selling price per unit is $65. Budgeted unit sales for June, July, August, and September are 9,600, 27,000, 29,000, and 30,000 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 30% of the following month’s unit sales.
d. 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.
e. Twenty five percent of raw materials purchases are paid for in the month of purchase and 75% in the following month.
f. The direct labor wage rate is $13 per hour. Each unit of finished goods requires two direct labor-hours.
g. The variable selling and administrative expense per unit sold is $1.60. The fixed selling and administrative expense per month is $66,000.

Required:
1. What are the budgeted sales for July?
2. What are the expected cash collections for July?
3. What is the accounts receivable balance at the end of July?
4. What is the estimated raw materials inventory balance (in dollars) at the end of July?

Answer 1

Explanation:

1. Budgeted sales for July = Budget sales unit × Selling price per unit

= 27,000 × $65

= $1,755,000

2. Expected cash collections for July = (Budget sales unit of June × Selling price per unit × Following month percentage) +  (Budgeted sales for July × finished goods inventory percentage)

= (9,600 × $65 × 70%) + ($1755,000 × 30%)

= $963,300

3. Accounts receivable balance at the end of July = Budgeted sales for July × Following month percentage

= $1,755,000 × 70%

= $1,228,500

4. The estimated raw materials inventory balance  is shown below:-

Budgeted sales for August = 29,000  

Add: Ending inventory for June = 9,000

(30,000 × 30%)  

Less: Beginning inventory = 8,700

(29,000 × 30%)  

Units to be produced = 29,300  

Raw materials per unit = 4  

Total raw materials required = 117,200

(29,300 × 4)  

Ending inventory(20%) = 23,440  

Cost per unit = 2.5  

Raw materials inventory balance = $58,600