Chapter 8 – Morganton Company makes one product

Chapter 8

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

1. The budgeted selling price per unit is $60. Budgeted unit sales for June, July, August, and September are 8,900, 20,000, 22,000, and 23,000 units, respectively. All sales are on credit.
2. Forty percent of credit sales are collected in the month of the sale and 60% in the following month.
3. The ending finished goods inventory equals 20% of the following month’s unit sales.
4. 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 $2.50 per pound.
5. Thirty percent of raw materials purchases are paid for in the month of purchase and 70% in the following month.
6. The direct labor wage rate is $13 per hour. Each unit of finished goods requires two direct labor-hours.
7. The variable selling and administrative expense per unit sold is $1.50. The fixed selling and administrative expense per month is $70,000.

15. If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $7 per direct labor-hour, what is the estimated net operating income for July?

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