Question

1. The Marketing Department has estimated sales as follows for the remainder of the year (in units):

July	34,000	October	24,000
August	78,000	November	10,500
September	47,000	December	11,000

The selling price of the beach umbrellas is $11 per unit.

2. All sales are on account. Based on past experience, sales are collected in the following pattern:

30%	in the month of sale
65%	in the month following sale
5%	uncollectible

Sales for June totaled $297,000.

3. The company maintains finished goods inventories equal to 15% of the following month’s sales. This requirement will be met at the end of June.

4. Each beach umbrella requires 4 feet of Gilden, a material that is sometimes hard to acquire. Therefore, the company requires that the ending inventory of Gilden be equal to 50% of the following month’s production needs. The inventory of Gilden on hand at the beginning and end of the quarter will be:

June 30	81,200	feet
September 30	?	feet

5. Gilden costs $0.80 per foot. One-half of a month’s purchases of Gilden is paid for in the month of purchase; the remainder is paid for in the following month. The accounts payable on July 1 for purchases of Gilden during June will be $54,920.

Required:

1. Calculate the estimated sales, by month and in total, for the third quarter.

2. Calculate the expected cash collections, by month and in total, for the third quarter.

3. Calculate the estimated quantity of beach umbrellas that need to be produced in July, August, September, and October.

4. Calculate the quantity of Gilden (in feet) that needs to be purchased by month and in total, for the third quarter.

5. Calculate the cost of the raw material (Gilden) purchases by month and in total, for the third quarter.

6. Calculate the expected cash disbursements for raw material (Gilden) purchases, by month and in total, for the third quarter.

Answer 1

1. Calculate the estimated sales, by month and in total, for the third quarter.

	July	August	September	Quarter
Budgeted unit sales	34000	78000	47000	159000
Selling price per unit	$11	$11	$11	$11
Budgeted sales	$374000	$858000	$517000	$1749000

2. Calculate the expected cash collections, by month and in total, for the third quarter.

	July	August	September	Quarter
Accounts receivable, June 30	(297000*65%)= $193050	-	-	$193050
July sales	(374000*30%)= 112200	(374000*65%)= 243100	-	355300
August sales	-	(858000*30%)= 257400	(858000*65%)= 557700	815100
September sales	-	-	(517000*30%)= 155100	155100
Total cash collections	$305250	$500500	$712800	$1518550

3. Calculate the estimated quantity of beach umbrellas that need to be produced in July, August, September, and October.

	July	August	September	October
Budgeted unit sales	34000	78000	47000	24000
Add: Desired ending inventory	11700	7050	3600	1575
Total needs	45700	85050	50600	25575
Less: Beginning inventory	(5100)	(11700)	(7050)	(3600)
Required productions in units	40600	73350	43550	21975

Calculation of Ending inventory

July= 78000*15%= 11700

August= 47000*15%= 7050

September= 24000*15%= 3600

October= 10500*15%= 1575

Calculation of Beginning inventory

July= 34000*15%= 5100

4. Calculate the quantity of Gilden (in feet) that needs to be purchased by month and in total, for the third quarter.

	July	August	September	Quarter
Required production in units	40600	73350	43550	157500
Units of raw materials needed per unit	4	4	4	4
Units of raw materials needed to meet production	162400	293400	174200	630000
Add: Desired ending raw materials inventory	146700	87100	43950	43950
Total units of raw materials needed	309100	380500	218150	673950
Less: Beginning raw materials inventory	(81200)	(146700)	(87100)	(81200)
Units of raw materials to be purchased	227900	233800	131050	592750

Calculation of Desired ending raw materials inventory

July= 293400*50%= 146700

August= 174200*50%= 87100

September= 21975*4*50%= 43950

5. Calculate the cost of the raw material (Gilden) purchases by month and in total, for the third quarter.

	July	August	September	Quarter
Units of raw materials to be purchased	227900	233800	131050	592750
Unit cost of raw materials	$0.80	$0.80	$0.80	$0.80
Cost of raw materials to be purchased	$182320	$187040	$104840	$474200

6. Calculate the expected cash disbursements for raw material (Gilden) purchases, by month and in total, for the third quarter.

	July	August	September	Quarter
Accounts payable, June 30	$54920	-	-	$54920
July purchases	(182320*1/2)= 91160	(182320*1/2)= 91160	-	182320
August purchases	-	(187040*1/2)= 93520	(187040*1/2)= 93520	187040
September purchases	-	-	(104840*1/2)= 52420	52420
Total cash disbursements	$146080	$184680	$145940	$476700

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