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:

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

     July                  30,000               October                  20,000

     August             70,000               November              10,000

     September       50,000               December              10,000

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

b. 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 $300,000.

c. 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.

d. 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                    72,000 feet

             September 30                ?    feet

e. 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 $76,000.


Required:

1. Calculate the estimated sales (prepare a sales budget), by month and in total, for the third quarter. (Show your budget in both units and dollars.)

2. Calculate the expected cash collections (prepare a schedule of 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 (prepare a production budget for each of the months July–October).

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

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

Answer 1

Months	June	July	August	September	October	November	December
Units sold	25,000	30,000	70,000	50,000	20,000	10,000	10,000
Multiply by selling price per unit	12	12	12	12	12	12	12
Sales revenue	300,000	360,000	840,000	600,000	240,000	120,000	120,000
Collection
Sales collected in same month (Sales revenue * 30%)	90,000	108,000	252,000	180,000	72,000	36,000	36,000
Sales collected in next month (Sales revenue * 65%)	285,000	342,000	798,000	570,000	228,000	114,000	114,000
Production
units sold (Unit For June = 300000/12)	25,000	30,000	70,000	50,000	20,000	10,000	10,000
Ending finished goods inventory in units (next month's units sold * 15%)	4,500	10,500	7,500	3,000	1,500	1,500
Units Produced		36,000	67,000	45,500	18,500
Material required for Production of finished goods (unit produced * 4)		144,000	268,000	182,000	74,000
Ending raw material in Gilden Feet (Material required for Production of finished goods * 50%)		134,000	91,000	37,000
Cost of material purchased		164,800	180,000	102,400
Paid in same month (Cost of material purchased * 50%)		82,400	90,000	51,200
Paid in after month (Cost of material purchased * 50%)		82,400	90,000	51,200

Answer 1
Sales Budget
	July	August	September	Third Quarter
Sales revenue	360,000	840,000	600,000	1,800,000
Answer 2
Estimated collection From Sales
	July	August	September	Third Quarter
From Sales of June	285,000			285,000
From Sales of July	108,000	342,000		450,000
From Sales of August		252,000	798,000	1,050,000
From Sales of September			180,000	180,000
Estimated collection From Sales	393,000	594,000	978,000	1,965,000
Answer 3
Estimated Production units
	July	August	September	October
Units sold	30,000	70,000	50,000	20,000
Add: ending finished goods inventory	10,500	7,500	3,000	1,500
Units available for sale	40,500	77,500	53,000	21,500
Less: Beginning finished goods inventory	4,500	10,500	7,500	3,000
Units Produced	36,000	67,000	45,500	18,500
Answer 4 and 5
Material Budget
	July	August	September	Third Quarter
Material required for Production of finished goods	144,000	268,000	182,000	594,000
Add: ending raw material in Gilden Feet	134,000	91,000	37,000	37,000
Raw material available for use	278,000	359,000	219,000	631,000
Less: Beginning raw material in Gilden Feet	72000	134,000	91,000	72000
Purchase of Gilden feet in Quantity	206,000	225,000	128,000	559,000
Multiply by: cost per feet	0.80	0.80	0.80	0.80
Cost of material purchased	164,800	180,000	102,400	447,200
Answer 6
Expected cash disbursements
	July	August	September	Third Quarter
From Purchase of June	76,000			76,000
From Purchase of July	82,400	82,400		164,800
From Purchase of August		90,000	90,000	180,000
From Purchase of September			51,200	51,200
Expected cash disbursements	158,400	172,400	141,200	472,000