Morganton Company makes one product and it provided the foll

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

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.

Forty percent of credit sales are collected in the month of the sale and 60% in the following month.

The ending finished goods inventory equals 20% 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 $2.00 per pound.

Thirty percent of raw materials purchases are paid for in the month of purchase and 70% in the following month.

The direct labor wage rate is $15 per hour. Each unit of finished goods requires two direct labor-hours.

The variable selling and administrative expense per unit sold is $1.80. The fixed selling and administrative expense per month is $60,000.

ASK:

1. What is the estimated finished goods inventory balance at the end of July?

2. What is the estimated net operating income for July?

3. What are the expected cash collections for July?

Solution

Req 1: Finished Goods inventory at July end: Expected sales units of August 12000 Ending Inventory of July (20% of Aug sales) 2400 Ending Inventory pf July: 2400 units Req 2L Net operating income of July: sales revenue (10000 units @70) 700,000 Less: Cost of Goods sold Material (50000 pounds @2) 100,000 Labour (20000 hours @ 15) 300000 Cost of Goods sold 300000 Less: Variable Selling and admin 18000 (10000 units @1.80) Less: Fixed selling and admin 60000 Net Income 222000 Rreq 3: July Cash collections Collection of June month sales 235200 (8400*70)*60%) Collection of July month 280000 (700000*40%) Total collections 515200