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	39,000	October	29,000
August	88,000	November	15,500
September	57,000	December	16,000

The selling price of the beach umbrellas is $15 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 $555,000.

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	92,700	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 $66,920.

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

Solutions:

Milo Company
Sales Budget
Particulars	July	August	September	Quarter
Budgeted Unit sales	39000	88000	57000	184000
Selling Price per unit	$15.00	$15.00	$15.00	$15.00
Budgeted Sales	$5,85,000	$13,20,000	$8,55,000	$27,60,000
Milo Company
Schedule of Expected Cash Collection for 3rd Quarter
Particulars	July	August	September	Quarter
Accounts receivables, June 30	$3,60,750			$3,60,750
July Sales	$1,75,500	$3,80,250		$5,55,750
August Sales		$3,96,000	$8,58,000	$12,54,000
September sales			$2,56,500	$2,56,500
Total Cash collection	$5,36,250	$7,76,250	$11,14,500	$24,27,000
Milo Company
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	39000	88000	57000	29000
Add: Required ending Inventory (15% of Following month Sale)	13200	8550	4350	2325
Total Needs	52200	96550	61350	31325
Less: Opening Inventory	5850	13200	8550	4350
Required Production in units	46350	83350	52800	26975
Milo Company
Direct Materials Budget
Particulars	July	August	September	Quarter
Required Production in Units	46350	83350	52800	182500
Units of Raw materials needed per unit	4	4	4	4
Units of Raw materials needed to Meet production	185400	333400	211200	730000
Add: Required ending Inventory (50% of Following month Production Needs)	166700	105600	53950	53950
Total units of raw materials needed	352100	439000	265150	783950
Less: Opening Inventory of Gilden	92700	166700	105600	92700
Units of raw Materials to be Purchased	259400	272300	159550	691250
Milo Company
Cost of Direct Materials purchases Budget
Particulars	July	August	September	Quarter
Units of raw Materials to be Purchased	259400	272300	159550	691250
Unit cost of raw materials	$0.80	$0.80	$0.80	$0.80
Cost of Raw Material to be purchased	$2,07,520	$2,17,840	$1,27,640	$5,53,000
Milo Company
Schedule of expected cash disbursements
Particulars	July	August	September	Quarter
Accounts Payable, June 30	$66,920			$66,920
July Purchases	$1,03,760	$1,03,760		$2,07,520
August Purchases		$1,08,920	$1,08,920	$2,17,840
September Purchases			$63,820	$63,820
Total Cash disbursements	$1,70,680	$2,12,680	$1,72,740	$5,56,100