Question

Morganton Company makes one product and it provided the following information to help prepare the master budget:

a. The budgeted selling price per unit is $70. Budgeted unit sales for June, July, August, and September are 8,800, 19,000, 21,000, and 22,000 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 20% of the following month’s unit sales.
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 $2.40 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 $12 per hour. Each unit of finished goods requires two direct labor-hours.
g. The variable selling and administrative expense per unit sold is $2.00. The fixed selling and administrative expense per month is $69,000.
Required:
1. What is the accounts receivable balance at the end of July?
2. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated finished goods inventory balance at the end of July?
3. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated cost of goods sold and gross margin for July?
4. What is the estimated total selling and administrative expense for July?
5. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated net operating income for July?

Answer 1

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

• $931,000

2. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated finished goods inventory balance at the end of July?

• $235,200

3. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated cost of goods sold and gross margin for July?

• COGS July = 19,000 x $46 = $874,000
• gross profit July = $456,000

4. What is the estimated total selling and administrative expense for July?

• $107,000

5. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated net operating income for July?

• $349,000

Step-by-step explanation:

budgeted selling price per unit $70

budgeted unit sales:

June July August September

units $$$ units $$$ units $$$ units $$$

8,800 $616 19,000 $1,330 21,000 $1,470 22,000 $1,540

$184.8 $431.2

$399 (from July) $931

$441 $1,029

$462

ending finished goods inventory:

June July August September

units $$$ units $$$ units $$$ units $$$

3,800 4,200 4,400

variable manufacturing overhead per unit = $10 x 2 = $20

direct materials per unit = $12

direct labor per unit = $24

total cost per unit = $56

total ending goods inventory for July = $46 x 4,200 units = $235,200

Revenue July = 19,000 x $70 = $1,330,000

COGS July = 19,000 x $46 = $874,000

gross profit = $456,000

variable S&A expense = $2.00

fixed S&A expense = $69,000

total S&A expense for July = (19,000 x $2) + $69,000 = $107,000

estimated net operating income July = gross margin - S&A = $456,000 - $107,000 = $349,000