In: Accounting
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 | 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.
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.
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 | 72,000 | feet |
September 30 | ? | feet |
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.
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 |