Asked by Peyton Tippens on May 16, 2024
Verified
Luchini Corporation makes one product and it provided the following information to help prepare the master budget for the next four months of operations:The budgeted selling price per unit is $111. Budgeted unit sales for April, May, June, and July are 7,100, 10,100, 13,300, and 14,000 units, respectively. All sales are on credit.Regarding credit sales, 40% are collected in the month of the sale and 60% in the following month.The ending finished goods inventory equals 10% of the following month's sales.The ending raw materials inventory equals 30% of the following month's raw materials production needs. Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost $5.00 per pound.Regarding raw materials purchases, 40% are paid for in the month of purchase and 60% in the following month.The direct labor wage rate is $18.00 per hour. Each unit of finished goods requires 2.9 direct labor-hours.Variable manufacturing overhead is $7.00 per direct labor-hour. Fixed manufacturing overhead is zero.The budgeted accounts receivable balance at the end of May is closest to:
A) $747,000
B) $448,440
C) $672,660
D) $1,121,100
Accounts Receivable
Signifies the amount customers owe to a business for products or services that have been provided but not yet compensated for.
Budgeted Selling Price
The anticipated price at which a product is expected to be sold, as determined during the budgeting process.
- Investigate the practices of managing accounts payable and receivable and their impact on cash flow.
Verified Answer
BN
bhatini noyuloloMay 22, 2024
Final Answer :
C
Explanation :
First, we need to calculate the total sales revenue for each month:
April: 7,100 units x $111 per unit = $788,100
May: 10,100 units x $111 per unit = $1,121,100
June: 13,300 units x $111 per unit = $1,476,300
July: 14,000 units x $111 per unit = $1,554,000
Next, we need to calculate the collections for each month's credit sales:
April: 40% x $788,100 = $315,240
May: (60% x $788,100) + (40% x $1,121,100) = $472,860
June: (60% x $1,121,100) + (40% x $1,476,300) = $1,059,160
July: (60% x $1,476,300) + (40% x $1,554,000) = $1,421,880
The budgeted accounts receivable balance at the end of May is the total accounts receivable at the end of May, which is the sum of April's collections and May's collections minus May's sales revenue:
($315,240 + $472,860) - $1,121,100 = $667,000
However, we need to remember that not all of May's sales revenue will be collected in May, so we need to adjust for May's collections for sales made in April as well:
($315,240 + ($472,860 x 0.4) + ($1,121,100 x 0.6)) - $1,121,100 = $672,660
Therefore, the closest answer is C) $672,660.
April: 7,100 units x $111 per unit = $788,100
May: 10,100 units x $111 per unit = $1,121,100
June: 13,300 units x $111 per unit = $1,476,300
July: 14,000 units x $111 per unit = $1,554,000
Next, we need to calculate the collections for each month's credit sales:
April: 40% x $788,100 = $315,240
May: (60% x $788,100) + (40% x $1,121,100) = $472,860
June: (60% x $1,121,100) + (40% x $1,476,300) = $1,059,160
July: (60% x $1,476,300) + (40% x $1,554,000) = $1,421,880
The budgeted accounts receivable balance at the end of May is the total accounts receivable at the end of May, which is the sum of April's collections and May's collections minus May's sales revenue:
($315,240 + $472,860) - $1,121,100 = $667,000
However, we need to remember that not all of May's sales revenue will be collected in May, so we need to adjust for May's collections for sales made in April as well:
($315,240 + ($472,860 x 0.4) + ($1,121,100 x 0.6)) - $1,121,100 = $672,660
Therefore, the closest answer is C) $672,660.
Learning Objectives
- Investigate the practices of managing accounts payable and receivable and their impact on cash flow.
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