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	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	72000	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 $76000.

Required:

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.

Answer 1

1)	Sales budget
				july	august	sept	quarter
	Estimated sale units			30,000	70,000	50,000	150,000
	Selling price per unit			12	12	12	12
	total sales			360000	840000	600000	1800000
2)	Expected cash collection
				july	august	sept	quarter
From june sales 300,000*65%)				195000			195000
from july sales(360000*30%;65%)				108000	234000		342000
From aug sales (840,000*30%;65%)					252000	546000	798000
From sept sales (600,000*30%)						180000	180000
total cash collections				303000	486000	726000	1515000
3)	production budget
				july	august	sept	october
	Estimated sale units			30,000	70,000	50,000	20,000
Add: Ending inventory				10500	7500	3000	1500
total needs				40,500	77,500	53,000	21,500
less :opening inventory				-4500	-10,500	-7,500	-3000
production required				36,000	67,000	45,500	18,500
4)
				july	august	sept	Quarter		0ct
production required				36,000	67,000	45,500	148,500		18,500
feet required per umbrella				4	4	4	4		4
production needs				144000	268000	182000	594000		74000
Add:Ending inventory				134000	91000	37000	37,000
total needs				278000	359000	219000	631000
less:Opening inventory				-72000	-134,000	-91,000	-72,000
total materials purchased				206000	225000	128000	559000
5)	cost of raw materials purchases
				july	august	sept	Quarter
total materals purchased				206000	225000	128000	559000
cost per feet				$0.80	$0.80	$0.80	$0.80
Materials cost				$164,800.00	$180,000.00	$102,400.00	$447,200.00
6)	Cash disbursement
				july	august	sept	Quarter
accounts payable				76,000			76,000
From july sales				$82,400.00	$82,400.00		$164,800.00
from aug sales					$90,000.00	$90,000.00	180000
from sept sales						$51,200.00	51200
total cash disrbursement				158,400	172400	141200	472,000