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 38,000 October 28,000 August 86,000 November 14,500 September 55,000 December 15,000 The selling price of the beach umbrellas is $13 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 $455,000. 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 90,400 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 $48,390. 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	38000	86000	55000	179000
Selling Price per unit	$13.00	$13.00	$13.00	$13.00
Estimated Sales	$494,000.00	$1,118,000.00	$715,000.00	$2,327,000.00

solution 2:

Milo Company - Computation of Estimated Cash Collection for 3rd Quarter
Particulars	July	August	September	Total
Accounts receivables, June 30	$295,750.00			$295,750.00
July Sales	$148,200.00	$321,100.00		$469,300.00
August Sales		$335,400.00	$726,700.00	$1,062,100.00
September sales			$214,500.00	$214,500.00
Total Cash collection	$443,950.00	$656,500.00	$941,200.00	$2,041,650.00

solution 3:

Milo Company - Computation of Estimated Production of Beach Umbrellas
Particulars	July	August	September	October
Sales in Units	38000	86000	55000	28000
Required ending Inventory (15% of Following month Sale)	12900	8250	4200	2175
Total Needs	50900	94250	59200	30175
Opening Inventory	5700	12900	8250	4200
Estimated Production (Sales + Ending Inventory - Opening Inventory)	45200	81350	50950	25975

Solution 4:

Milo Company - Computation of quantity of Gilden to be purchased in 3rd quarter
Particulars	July	August	September	Total
Estimated Production	45200	81350	50950	177500
Required qty of Gilder per unit (In feet)	4	4	4	4
Total requirement of Gilden	180800	325400	203800	710000
Required ending Inventory (50% of Following month Production Needs)	162700	101900	51950	51950
Total units of raw materials needed	343500	427300	255750	761950
Opening Inventory of Gilden	90400	162700	101900	90400
Quantity of Gilden to be Purchased	253100	264600	153850	671550

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	253100	264600	153850	671550
Cost per unit	$0.60	$0.60	$0.60	$0.60
Cost of Raw Material Purchase	$151,860.00	$158,760.00	$92,310.00	$402,930.00

solution 6:

Milo Company - Computation of expected cash disbursement
Particulars	July	August	September	Total
Accounts Payable, June 30	$48,390.00			$48,390.00
July Purchases	$75,930.00	$75,930.00		$151,860.00
August Purchases		$79,380.00	$79,380.00	$158,760.00
September Purchases			$46,155.00	$46,155.00
Total Cash disbursements	$124,320.00	$155,310.00	$125,535.00	$405,165.00