# Direct Materials Budget question; NEED HELP BLARG!

#### dratsab

The info is:

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’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) Thirty-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 \$60,000.

If 61,000 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?
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I'm just trying to check the 61,000 to get it to match with August.

I got 12,000 sales budgeted + 2,600 desired end = 14,600 - 2,000 (beg inv) = 12,600.
12,600 x 5 = 63,000 + 6,500 (10% of 13,000) = 69,500 - 6,300 = 63,200. Which is NOT 61,00 arg!

#### Triest123

VIP Member
The info is:

I got 12,000 sales budgeted + 2,600 desired end = 14,600 - 2,000 (beg inv) = 12,600.
12,600 x 5 = 63,000 + 6,500 (10% of 13,000) = 69,500 - 6,300 = 63,200. Which is NOT 61,00 arg!

The production unit for Aug is
12,000 sales budgeted + 2,600 desired end - 2,400 (beg inv) = 12,200 units

The material purchase for Jul is
52,000 material used + 6,100 desired end - 5,200 (beg. material ) = 52,900 pounds

#### dratsab

The production unit for Aug is
12,000 sales budgeted + 2,600 desired end - 2,400 (beg inv) = 12,200 units

The material purchase for Jul is
52,000 material used + 6,100 desired end - 5,200 (beg. material ) = 52,900 pounds
Thanks. Now the question is "What is the estimated raw materials inventory balance at the end of July?" I know some key to it is in step (d), but does the 61,000 from August play a part in it?

#### Triest123

VIP Member
Thanks. Now the question is "What is the estimated raw materials inventory balance at the end of July?" I know some key to it is in step (d), but does the 61,000 from August play a part in it?
The question mentions that "the ending raw materials inventory equals 10% of the following month’s raw materials production needs."

so the raw materials inventory balance at the end of July
61,000 ( Aug's production) x 10% = 6,100 pounds

#### dratsab

Thanks a lot, good sir. I have another question of a different nature. This is what is provided:

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Crystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as follows:

Sales in Units
July 24,000
August 42,000
September 58,000
October 48,000

The company is now in the process of preparing a production budget for the third quarter. Past experience has shown that end-of-month finished goods inventories must equal 10% of the next month’s sales.

Required:
Prepare a production budget for the third quarter showing the number of units to be produced each month and for the quarter in total. (Do not round intermediate calculations. Input all amounts as positive values.)
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I've answered everything correctly except one thing. Where is the ending balance for June? And thus the beginning balance for July? Is all the necessary info available to me?

#### Triest123

VIP Member
Thanks a lot, good sir. I have another question of a different nature. This is what is provided:

---
Crystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as follows:

Sales in Units
July 24,000
August 42,000
September 58,000
October 48,000

The company is now in the process of preparing a production budget for the third quarter. Past experience has shown that end-of-month finished goods inventories must equal 10% of the next month’s sales.

Required:
Prepare a production budget for the third quarter showing the number of units to be produced each month and for the quarter in total. (Do not round intermediate calculations. Input all amounts as positive values.)
---

I've answered everything correctly except one thing. Where is the ending balance for June? And thus the beginning balance for July? Is all the necessary info available to me?

The ending bal for Jun = The beginning bal for Jul = 24,000 x 10% = 2,400 units

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