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The following information applies to the questions displayed below.] Morganton Company makes one product, and has provided the following information to help prepare the master budget for its first four months of operations: a. The budgeted selling price per unit is $70. Budgeted unit sales for June, July, August, and September are 8,200, 13,000, 15,000, and 16,000 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 kilograms of raw materials. The raw materials cost $2.50 per kilogram. e. Thirty percent of raw materials purchases are paid for in the month of purchase and 70% in the following month. f. The direct labour wage rate is $14 per hour. Each unit of finished goods requires two direct labour-hours. g. The variable selling and administrative expense per unit sold is $1.40. The fixed selling and administrative expense per month is $63,000. 4. According to the production budget, how many units should be produced in July? Required production units
Computation of no of units to be produced in July:
As per the company's policy, they keep finished goods inventory equal to 20% of the following month's unit sales.
The beginning finished goods inventory for the month of July must be = 20% of estimated unit sales of July = 20% of 13,000 = 2,600 units
The ending finished goods inventory for the month of July must be = 20% of estimated unit sales of August = 20% of 15,000 = 3,000 units
We know that:
No of units sale in the month of July = Beginning finished goods inventory of July + No of units produced in July - Ending finished goods inventory of July
Therefore, 13,000 units = 2,600 units + No of units produced in July - 3,000
or No of units produced in July = 13,000 - 2,600 + 3,000 = 13,400 units
