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	38,500	October	28,500
August	87,000	November	15,000
September	56,000	December	15,500

The selling price of the beach umbrellas is $14 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 $504,000.

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:

June 30	91,550	feet
September 30	?	feet

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 $49,290.

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	sept	quarter
	Estimated sale units			38,500	87,000	56,000	181,500
	Selling price per unit			14	14	14	14
	total sales			539000	1218000	784000	2541000
2)	Expected cash collection
				july	august	sept	quarter
From june sales (504,000*65%)				327600			327600
from july sales(539000*30%;65%)				161700	350350		512050
From aug sales (1218,000*30%;65%)					365400	791700	1157100
From sept sales (784,000*30%)						235200	235200
total cash collections				489300	715750	1026900	2231950
3)	production budget
				july	august	sept	october
	Estimated sale units			38,500	87,000	56,000	28,500
Add: Ending inventory				13050	8400	4275	2850
total needs				51,550	95,400	60,275	31,350
less :opening inventory				-5775	-13,050	-8,400	-4275
production required				45,775	82,350	51,875	27,075
4)
				july	august	sept	Quarter		0ct
production required				45,775	82,350	51,875	180,000		27,075
feet required per umbrella				4	4	4	4		4
production needs				183100	329400	207500	720000		108300
Add:Ending inventory				164700	103750	54150	54,150
total needs				347800	433150	261650	774150
less:Opening inventory				-91550	-164,700	-103,750	-91,550
total materials purchased				256250	268450	157900	682600
5)	cost of raw materials purchases
				july	august	sept	Quarter
total materals purchased				256250	268450	157900	682600
cost per feet				$0.60	$0.60	$0.60	$0.60
Materials cost				$153,750.00	$161,070.00	$94,740.00	$409,560.00
6)	Cash disbursement
				july	august	sept	Quarter
accounts payable				49,290			49,290
From july sales (210040*1/2)				$76,875.00	$76,875.00		$153,750.00
from aug sales (220920*1/2)					$80,535.00	$80,535.00	161070
from sept sales (129,920*1/2)						$47,370.00	47370
total cash disrbursement				126,165	157410	127905	411,480