Reference no: EM132726754

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

a. The budgeted selling price per unit is $70. Budgeted unit sales for June, July, August, and September are 10,000, 12,000 14,000, 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'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 $2.00 per pound.

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

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

g. The variable selling and administrative expense per unit sold is $1.80. The fixed selling and administrative expense per month is $62,000.

Question 1. What is the estimated cost of goods sold and gross margin for July?

Unit sales (a).......................................................................................

Unit product cost (b)...........................................................................

Estimated cost of goods sold (a) × (b) ................................................

The estimated gross margin for July is computed as follows:

Total sales (a)......................................................................................

Cost of goods sold (b).........................................................................

Estimated gross margin (a) - (b).........................................................

Question 2. The estimated selling and administrative expense for July is computed as follows:

Budgeted unit sales ..................................................................

Variable selling and administrative .........................................

expense per unit ...................................................................

Total variable expense .............................................................

Fixed selling and administrative expenses...............................

Total selling and administrative expenses ...............................

Question 3. What is the estimated net operating income for July?

Gross margin (a) .................................................................................

Selling and administrative expenses (b) .............................................

Net operating income (a) - (b)............................................................