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):

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

  

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

  

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 $297,000.

  

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	81,200	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 $54,920.

  

Required:

1-a.	Prepare a sales budget, by month and in total, for the third quarter.

      

1-b.	Prepare a schedule of expected cash collections, by month and in total, for the third quarter.

      

2.	Prepare a production budget for each of the months July–October.

        

Answer 1