Question

Luchini Corporation makes one product and it provided the following information to help prepare the master budget for the next four months of operations:
The budgeted selling price per unit is $111.
Budgeted unit sales for April, May, June, and July are 7,100, 10,100, 13,300, and 14,000 units, respectively. All sales are on credit.
Regarding credit sales, 40% are collected in the month of the sale and 60% in the following month.
The ending finished goods inventory equals 10% of the following month's sales.
The ending raw materials inventory equals 30% of the following month’s raw materials production needs.
Each unit of finished goods requires 5 pounds of raw materials.
The raw materials cost $5.00 per pound.
Regarding raw materials purchases, 40% are paid for in the month of purchase and 60% in the following month.
The direct labor wage rate is $18.00 per hour.
Each unit of finished goods requires 2.9 direct labor-hours.
Variable manufacturing overhead is $7.00 per direct labor-hour.
Fixed manufacturing overhead is zero.
The estimated finished goods inventory balance at the end of May is closest to:
Multiple Choice
$102,676
$111,986
$26,999
$129,675

Answer 1

Answer:

Option (D) is correct.

Explanation:

Estimated finished goods inventory balance at the end of May:

Estimated finished goods Ending Inventory:

= 13,300 units (June sale) × 10%

= 1,330 units

Units Produced:

= Estimated sale + Ending Inventory of finished goods – Beginning inventory of finished goods

= 10,100 units + (13,300 units × 10%) - (10,100 units × 10%)

= 10,420 units

Total cost of Production:

= Raw Material Cost + Direct Labour cost + Variable mfr O/H

= (10,420 units × 5 pound × $5) + (10,420 units × 2.9 hrs × $18) + (10,420 units × 2.9 hrs × $7)

= 260,500 + 543,924 + 211,526

= $1,015,950

Cost per unit = Total cost of Production ÷ Units produced

                      = $1,015,950 ÷ 10420

                      = $97.5 per unit

Cost of Ending Inventory of finished goods:

= Estimated finished goods Ending Inventory × Cost per unit

= 1,330 units × $97.5

= $129,675