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	36,000	October	26,000
August	82,000	November	12,500
September	51,000	December	13,000

The selling price of the beach umbrellas is $15 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 $465,000.

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	85,800	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 $44,790.

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

Solution 1:

Milo Company - Computation of Estimated Sales for 3rd Quarter
Particulars	July	August	September	Total
Sales in Units	36000	82000	51000	169000
Selling Price per unit	$15.00	$15.00	$15.00	$15.00
Estimated Sales	$540,000.00	$1,230,000.00	$765,000.00	$2,535,000.00

Solution 2:

Milo Company - Computation of Estimated Cash Collection for 3rd Quarter
Particulars	June	July	August	September	Total
Estimated Sales	$465,000.00	$540,000.00	$1,230,000.00	$765,000.00	$3,000,000.00
Cash Collection (30% in month of sales and 65% in following month)		$464,250.00	$720,000.00	$1,029,000.00	$2,213,250.00

Solution 3:

Milo Company - Computation of Estimated Production of Beach Umbrellas
Particulars	July	August	September	October
Sales in Units	36000	82000	51000	26000
Required ending Inventory (15% of Following month Sale)	12300	7650	3900	1875
Opening Inventory	5400	12300	7650	3900
Estimated Production (Sales + Ending Inventory - Opening Inventory)	42900	77350	47250	23975

Solution 4:

Milo Company - Computation of quantity of Gilden to be purchased in 3rd quarter
Particulars	July	August	September	Total
Estimated Production	42900	77350	47250	167500
Required qty of Gilder per unit (In feet)	4	4	4	4
Total requirement of Gilden	171600	309400	189000	670000
Required ending Inventory (50% of Following month Production Needs)	154700	94500	47950	47950
Opening Inventory of Gilden	85800	154700	94500	85800
Quantity of Gilden to be Purchased	240500	249200	142450	632150

Solution 5:

Milo Company - Computation of cost of Gilden to be purchased in 3rd quarter
Particulars	July	August	September	Total
Quantity of Gilden to be Purchased	240500	249200	142450	632150
Cost per unit	$0.60	$0.60	$0.60	$0.60
Cost of Raw Material Purchase	$144,300.00	$149,520.00	$85,470.00	$379,290.00

Solution 6:

Milo Company - Computation of expected cash disbursement
Particulars	July	August	September	Total
Cost of Raw Material Purchase	$144,300.00	$149,520.00	$85,470.00	$379,290.00
Cash disbursement (50% in month of purchase and 50% in following month)	$116,940.00	$146,910.00	$117,495.00	$381,345.00