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:

1. 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		31,000		October		21,000
August		72,000		November		7,500
September		41,000		December		8,000

2. 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 $231,000.

3. 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.
4. 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	74,300	feet
September 30	?	feet

5. 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 $35,790.

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.

3-a. Prepare a direct materials budget for Gilden, by month and in total, for the third quarter. (Round your Unit cost of raw materials to 2 decimal places.)

3-b. Prepare a schedule of expected cash disbursements for Gilden, by month and in total, for the third quarter.

Answer 1

(1a) Sales Budget :-

	July	Aug	Sep	Quarter
Budgeted Unit Sales	31000	72000	41000	144000
Selling price per unit	$11	$11	$11	$11
Budgeted Sales	$341,000	$792,000	$451,000	$1,584,000

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

	July	Aug	Sep	Quarter
Account Receivable, June 30	$150,150			$150,150
July Sales	($341000 * 30%) =$102,300	($341000 * 65%) =$221,650		$323,950
August Sales		($792000 * 30%) =$237,600	($792000 * 65%) $514,800	$752,400
September Sales			($451000 * 30%) =$135,300	$135,300
Total cash collections	$252,450	$459,250	$650,100	$1,361,800

(2) Prepare a production budget for each of the months July–October :-

	July	Aug	Sep	October
Budgeted Unit Sales	31000	72000	41000	21000
Add:Desired Ending Finished Goods inventory	(72000*15%) =10800	(41000*15%) =6150	(21000*15%) =3150	(7500*15%) =1125
Total Needs	41800	78150	44150	22125
Less: Beginning Finished Goods Inventory	(31000*15%) =4650	10800	6150	3150
Required Production in units	37150	67350	38000	18975

(3a) Prepare a direct materials budget for Gilden, by month and in total, for the third quarter:-

	July	Aug	Sep	Quarter
Required Production in units of finished goods	37150	67350	38000	142500
Units of raw material required per unit of finished goods	4	4	4	4
Unit of Raw material needed to meet production	148600	269400	152000	570000
Add:Desired Ending Raw material inventory	(269400/2) =134700	(152000/2) =76000	(18975*4/2) =37950	37950
Total units of raw material needed	283300	345400	189950	607950
Less: Beginning Raw material inventory	74300	134700	76000	74300
Units of Raw material to be purchased	209000	210700	113950	533650
Unit cost of raw material	$0.60	$0.60	$0.60	$0.60
Cost of raw material to be purchased	$125,400	$126,420	$68,370	$320,190

(3b) Prepare a schedule of expected cash disbursements for Gilden, by month and in total, for the third quarter:-

	July	Aug	Sep	Quarter
Account Payable, June 30	$35,790			$35,790
July Purchases	$62,700	$62,700		$125,400
August Purchases		$63,210	$63,210	$126,420
September Purchases			$34,185	$34,185
Total cash disbursements	$98,490	$125,910	$97,395	$321,795