Question

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Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and...

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):

July 30,000 October 20,000
August 70,000 November 10,000
September 50,000 December 10,000

The selling price of the beach umbrellas is $12 per unit.

  1. 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 $300,000.

  1. 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.

  2. 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 72,000 feet
September 30 ? feet
  1. 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 $76,000.

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.

Solutions

Expert Solution

Solution 1:
Milo Company - Computation of Estimated Sales for 3rd Quarter
Particulars July August September Total
Sales in Units 30000 70000 50000 150000
Selling Price per unit $12.00 $12.00 $12.00 $12.00
Estimated Sales $360,000.00 $840,000.00 $600,000.00 $1,800,000.00
Solution 2:
Milo Company - Computation of Estimated Cash Collection for 3rd Quarter
Particulars July August September Total
Accounts receivables, June 30 $195,000.00 $195,000.00
July Sales $108,000.00 $234,000.00 $342,000.00
August Sales $252,000.00 $546,000.00 $798,000.00
September sales $180,000.00 $180,000.00
Total Cash collection $303,000.00 $486,000.00 $726,000.00 $1,515,000.00
Solution 3:
Milo Company - Computation of Estimated Production of Beach Umbrellas
Particulars July August September October
Sales in Units 30000 70000 50000 20000
Required ending Inventory (15% of Following month Sale) 10500 7500 3000 1500
Total Needs 40500 77500 53000 21500
Opening Inventory 4500 10500 7500 3000
Estimated Production (Sales + Ending Inventory - Opening Inventory) 36000 67000 45500 18500
Solution 4:
Milo Company - Computation of quantity of Gilden to be purchased in 3rd quarter
Particulars July August September Total
Estimated Production 36000 67000 45500 148500
Required qty of Gilder per unit (In feet) 4 4 4 4
Total requirement of Gilden 144000 268000 182000 594000
Required ending Inventory (50% of Following month Production Needs) 134000 91000 37000 37000
Total units of raw materials needed 278000 359000 219000 631000
Opening Inventory of Gilden 72000 134000 91000 72000
Quantity of Gilden to be Purchased 206000 225000 128000 559000
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 206000 225000 128000 559000
Cost per unit $0.80 $0.80 $0.80 $0.80
Cost of Raw Material Purchase $164,800.00 $180,000.00 $102,400.00 $447,200.00
Solution 6:
Milo Company - Computation of expected cash disbursement
Particulars July August September Total
Accounts Payable, June 30 $76,000.00 $76,000.00
July Purchases $82,400.00 $82,400.00 $164,800.00
August Purchases $90,000.00 $90,000.00 $180,000.00
September Purchases $51,200.00 $51,200.00
Total Cash disbursements $158,400.00 $172,400.00 $141,200.00 $472,000.00

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