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	42,500	October	32,500
August	95,000	November	19,000
September	64,000	December	19,500

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 $440,000.

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	100,750	feet
September 30	?	feet

5. Gilden costs $0.40 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 $37,660.

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

1)	Sales budget
				july	august	sept	quarter
	Estimated sale units			42,500	95,000	64,000	201,500
	Selling price per unit			10	10	10	10
	total sales			425000	950000	640000	2015000
2)	Expected cash collection
				july	august	sept	quarter
From june sales (440,000*65%)				286000			286000
from july sales(425000*30%;65%)				127500	276250		403750
From aug sales (950,000*30%;65%)					285000	617500	902500
From sept sales (640,000*30%)						192000	192000
total cash collections				413500	561250	809500	1784250
3)	production budget
				july	august	sept	october
	Estimated sale units			42,500	95,000	64,000	32,500
Add: Ending inventory				14250	9600	4875	2850
total needs				56,750	104,600	68,875	35,350
less :opening inventory				-6375	-14,250	-9,600	-4875
production required				50,375	90,350	59,275	30,475
4)
				july	august	sept	Quarter		0ct
production required				50,375	90,350	59,275	200,000		30,475
feet required per umbrella				4	4	4	4		4
production needs				201500	361400	237100	800000		121900
Add:Ending inventory				180700	118550	60950	60,950
total needs				382200	479950	298050	860950
less:Opening inventory				-100750	-180,700	-118,550	-100,750
total materials purchased				281450	299250	179500	760200
5)	cost of raw materials purchases
				july	august	sept	Quarter
total materals purchased				281450	299250	179500	760200
cost per feet				$0.40	$0.40	$0.40	$0.40
Materials cost				$112,580.00	$119,700.00	$71,800.00	$304,080.00
6)	Cash disbursement
				july	august	sept	Quarter
accounts payable				37,660			37,660
From july sales (210040*1/2)				$56,290.00	$56,290.00		$112,580.00
from aug sales (220920*1/2)					$59,850.00	$59,850.00	119700
from sept sales (129,920*1/2)						$35,900.00	35900
total cash disrbursement				93,950	116140	95750	305,840