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:

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

July	31,500	October	21,500
August	73,000	November	8,000
September	42,000	December	8,500

The selling price of the beach umbrellas is $12 per unit.

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 $264,000.

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.

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:

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 $48,920.

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

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

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

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

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

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

Answer 1

Solution:

Milo Company
Sales Budget
Particulars	July	August	September	Quarter
Budgeted Unit sales	31500	73000	42000	146500
Selling Price per unit	$12.00	$12.00	$12.00	$12.00
Budgeted Sales	$3,78,000	$8,76,000	$5,04,000	$17,58,000

Milo Company
Schedule of Expected Cash Collection for 3rd Quarter
Particulars	July	August	September	Quarter
Accounts receivables, June 30	$1,71,600			$1,71,600
July Sales	$1,13,400	$2,45,700		$3,59,100
August Sales		$2,62,800	$5,69,400	$8,32,200
September sales			$1,51,200	$1,51,200
Total Cash collection	$2,85,000	$5,08,500	$7,20,600	$15,14,100

Milo Company
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	31500	73000	42000	21500
Add: Required ending Inventory (15% of Following month Sale)	10950	6300	3225	1200
Total Needs	42450	79300	45225	22700
Less: Opening Inventory	4725	10950	6300	3225
Required Production in units	37725	68350	38925	19475

Milo Company
Direct Materials Budget
Particulars	July	August	September	Quarter
Required Production in Units	37725	68350	38925	145000
Units of Raw materials needed per unit	4	4	4	4
Units of Raw materials needed to Meet production	150900	273400	155700	580000
Add: Required ending Inventory (50% of Following month Production Needs)	136700	77850	38950	38950
Total units of raw materials needed	287600	351250	194650	618950
Less: Opening Inventory of Gilden	75450	136700	77850	75450
Units of raw Materials to be Purchased	212150	214550	116800	543500

Milo Company
Cost of Direct Materials purchases Budget
Particulars	July	August	September	Quarter
Units of raw Materials to be Purchased	212150	214550	116800	543500
Unit cost of raw materials	$0.80	$0.80	$0.80	$0.80
Cost of Raw Material to be purchased	$1,69,720	$1,71,640	$93,440	$4,34,800

Milo Company
Schedule of expected cash disbursements
Particulars	July	August	September	Quarter
Accounts Payable, June 30	$48,920			$48,920
July Purchases	$84,860	$84,860		$1,69,720
August Purchases		$85,820	$85,820	$1,71,640
September Purchases			$46,720	$46,720
Total Cash disbursements	$1,33,780	$1,70,680	$1,32,540	$4,37,000