Question

Morganton Company makes one product and it provided the following information to help prepare the master budget for its four months of operations:

(a) The budgeted selling price per unit is $70. Budgeted unit sales for June, July, August, and September are 8,400, 10,000, 12,000, and 13,000 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 20% of the following month
d. 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 $2.00 per pound.
Required:
1. Discuss some of the major benefits to be gained from budgeting. Support your answer with suitable example?
2. What are the budgeted sales for July?
3. What are the expected cash collections for July?
4. What are the accounts receivable balance at the end of July?
5. According to the production budget, how many units should be produced in July?

Answer 1

Morganton Company

1. Budgeting increases effective financial management while ensuring proper allocation of scarce resources. It encourages planning for the future as well as improved business decisions. It helps management to identify problems before they occur and to develop strategies for solving any problems that may arise. With budgeting, the organization is in a better position to monitor its overall performance and ensure the achievement of its goals and objectives. Finally, budgeting increases the motivation to achieve goals for both the management and individual employees.

2. The budgeted sales for July are $10,000.

3. The expected cash collections for July are $9,040.

4. The accounts receivable balance at the end of July are $6,000.

5. According to the production budget, the units produced in July are 1,040 units.

Step-by-step explanation:

a) Data and Calculations:

Budgeted selling price per unit = $70

June July August September

Budgeted unit sales 8,400 10,000 12,000 13,000

Cash Collections:

40% month of sale 3,360 4,000 4,800 5,200

60% month following 5,040 6,000 7,200

Total cash collections 3,360 9,040 10,800 12,400

Production costs:

June July August September

Ending Inventory 2,000 2,400 2,600

Cost of goods sold 8,400 10,000 12,000 13,000

Goods available 10,400 12,400 14,600

Beginning Inventory 1,680 2,000 2,400 2,600

Production costs 8,720 10,400 12,200

Unit cost of materials $10 $10 $10 ($2 * 5)

Units produced 872 1,040 1,220

Accounts receivable balance at July end:

June credit sales $8,400

June cash collection 3,360

July 1 Beginning bal. 5,040

July credit sales 10,000

Cash collections 9,040

Ending balance 6,000