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 41,000 October 31,000 August 92,000 November 17,500 September 61,000 December 18,000 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 $533,000. 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 97,300 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 $53,790. 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

Sales Budget
	July	August	September	Quarter
Budgeted unit sales	41,000	92,000	61,000
Selling price per unit	$13	$13	$13
Budgeted sales	$533,000	$1,196,000	$793,000	$2,522,000

Schedule of Cash Collections
	July	August	September	Quarter
Accounts receivable, June sales	$346,450 ($533,000*65%)			$346,450
July sales	159,900 (533,000*30%)	346,450 (533,000*65%)		506,350
August sales		358,800 (1,196,000*30%)	777,400 (1,196,000*65%)	1,136,200
September sales			237,900 (793,000*30%)	237,900
Total	$506,350	$705,250	$1,015,300	$2,226,900

Budgeted Production
	July	August	September	Quarter
Budgeted unit sales	41,000	92,000	61,000	194,000
Add: Desired ending finished goods inventory	13,800 (92,000*15%)	9,150 (61,000*15%)	4,650 (31,000*15%)	4,650
Total requirement	54,800	101,150	65,650	198,650
Less: Beginning finished goods inventory	6,150 (41,000*15%)	13,800	9,150	6,150
Budgted units production	48,650	87,350	56,500	192,500

Budgeted Raw Material Purchases
	July	August	September	Quarter
Budgeted units production	48,650	87,350	56,500	192,500
Material required per unit	4	4	4	4
Total raw material needed for production	194,600	349,400	226,000	770,000
Add: Desired ending raw material inventory	174,700 (349,400*50%)	113,000 (226,000*50%)	57,950	57,950
Total requirement	369,300	462,400	283,950	827,950
Less: Beginning raw material inventory	97,300	174,700	113,000	97,300
Budgeted raw material purchases	272,000	287,700	170,950	730,650

Raw material needed in the month of October = 28,975*4*50% = 57,950

	October
Budgeted unit sales	31,000
Add: Desired ending finished goods inventory (17,500*15%)	2,625
Total requirement	33,625
Less: Beginning finished goods inventory	4,650
Budgted units production	28,975

Budgted Cost of Raw Material Purchases
	July	August	September	Quarter
Budgeted raw material purchases	272,000	287,700	170,950	730,650
Cost per foot	$0.60	$0.60	$0.60	$0.60
Budgeted cost of raw material purchases	$163,200	$172,620	$102,570	$438,390

Schedule of Cash Disbursements
	July	August	September	Quarter
Accounts payable, July 1	$53,790			$53,790
July purchases	81,600 (163,200*50%)	81,600 (163,200*50%)		163,200
August purchases		86,310 (172,620*50%)	86,310 (172,620*50%)	172,620
September purchases			51,285 (102,570*50%)	51,285
Total	$135,390	$167,910	$137,595	$440,895