Question

Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation:

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

July	33,000	October	23,000
August	76,000	November	9,500
September	45,000	December	10,000

The selling price of the beach umbrellas is $15 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 $375,000.

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	78,900	feet
September 30	?	feet

5. Gilden costs $0.60 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 $39,390.

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.

Sales Budget
	July	August	September	Quarter
Expected Sales units	33000	76000	45000	154000
Sales Price per unit	$           15.00	$           15.00	$           15.00
Budgeted Sales Revenue	$      495,000	$   1,140,000	$      675,000	$   2,310,000

2.

Cash collections schedule
	July	August	September	Quarter
June Sales	$      243,750			$      243,750
July Sales	$      148,500	$      321,750		$      470,250
Aug Sales		$      342,000	$      741,000	$   1,083,000
Sep Sales			$      202,500	$      202,500
Total Cash Collections	$      392,250	$      663,750	$      943,500	$   1,999,500

3.

Production Budget
	July	August	September	Quarter	October
Sales units	33000	76000	45000	154000	23000
Add : Closing Stock Required	11400	6750	3450	3450	1425
Total Goods Required	44400	82750	48450	157450	24425
Less : Opening Stock	4950	11400	6750	4950	3450
Production Required	39450	71350	41700	152500	20975

4. & 5.

Direct Material Budget
	July	August	September	Quarter	October
Production Required	39450	71350	41700	152500	20975
Raw Material Per unit (Gilden)	4	4	4		4
Raw Material for Production	157800	285400	166800	610000	83900
Add : Closing Stock Required	142700	83400	41950	41950
Total Material Required	300500	368800	208750	651950
Less : Opening Stock	78900	142700	83400	78900
Units of raw material to be purchased	221600	226100	125350	573050
Rate per feet	$             0.60	$             0.60	$             0.60
Cost of material to be purchased	$      132,960	$      135,660	$        75,210	$      343,830

6.

Cash Disbursement for Materials
	July	August	September	Quarter
Paid in following month	$         39,390	$         66,480	$         67,830	$      173,700
Paid in same month	$         66,480	$         67,830	$         37,605	$      171,915
Total Cash Disbursements	$      105,870	$      134,310	$      105,435	$      345,615