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):

July	36,500	October	26,500
August	83,000	November	13,000
September	52,000	December	13,500

The selling price of the beach umbrellas is $10 per unit.

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 $320,000.

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	86,950	feet
September 30	?	feet

5. 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 $60,920.

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:

Milo Company
Sales Budget
Particulars	July	August	September	Quarter
Budgeted Unit sales	36500	83000	52000	171500
Selling Price per unit	$10.00	$10.00	$10.00	$10.00
Budgeted Sales	$3,65,000	$8,30,000	$5,20,000	$17,15,000
Milo Company
Schedule of Expected Cash Collection for 3rd Quarter
Particulars	July	August	September	Quarter
Accounts receivables, June 30	$2,08,000			$2,08,000
July Sales	$1,09,500	$2,37,250		$3,46,750
August Sales		$2,49,000	$5,39,500	$7,88,500
September sales			$1,56,000	$1,56,000
Total Cash collection	$3,17,500	$4,86,250	$6,95,500	$14,99,250
Milo Company
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	36500	83000	52000	26500
Add: Required ending Inventory (15% of Following month Sale)	12450	7800	3975	1950
Total Needs	48950	90800	55975	28450
Less: Opening Inventory	5475	12450	7800	3975
Required Production in units	43475	78350	48175	24475
Milo Company
Direct Materials Budget
Particulars	July	August	September	Quarter
Required Production in Units	43475	78350	48175	170000
Units of Raw materials needed per unit	4	4	4	4
Units of Raw materials needed to Meet production	173900	313400	192700	680000
Add: Required ending Inventory (50% of Following month Production Needs)	156700	96350	48950	48950
Total units of raw materials needed	330600	409750	241650	728950
Less: Opening Inventory of Gilden	86950	156700	96350	86950
Units of raw Materials to be Purchased	243650	253050	145300	642000
Milo Company
Cost of Direct Materials purchases Budget
Particulars	July	August	September	Quarter
Units of raw Materials to be Purchased	243650	253050	145300	642000
Unit cost of raw materials	$0.80	$0.80	$0.80	$0.80
Cost of Raw Material to be purchased	$1,94,920	$2,02,440	$1,16,240	$5,13,600
Milo Company
Schedule of expected cash disbursements
Particulars	July	August	September	Quarter
Accounts Payable, June 30	$60,920			$60,920
July Purchases	$97,460	$97,460		$1,94,920
August Purchases		$1,01,220	$1,01,220	$2,02,440
September Purchases			$58,120	$58,120
Total Cash disbursements	$1,58,380	$1,98,680	$1,59,340	$5,16,400