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	40,500	October	30,500
August	91,000	November	17,000
September	60,000	December	17,500

The selling price of the beach umbrellas is $12 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 $480,000.

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	96,150	feet
September 30	?	feet

5. 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 $52,890.

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	40500	91000	60000	191500
Selling Price per unit	$12.00	$12.00	$12.00	$12.00
Budgeted Sales	$4,86,000	$10,92,000	$7,20,000	$22,98,000
Milo Company
Schedule of Expected Cash Collection for 3rd Quarter
Particulars	July	August	September	Quarter
Accounts receivables, June 30	$3,12,000			$3,12,000
July Sales	$1,45,800	$3,15,900		$4,61,700
August Sales		$3,27,600	$7,09,800	$10,37,400
September sales			$2,16,000	$2,16,000
Total Cash collection	$4,57,800	$6,43,500	$9,25,800	$20,27,100
Milo Company
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	40500	91000	60000	30500
Add: Required ending Inventory (15% of Following month Sale)	13650	9000	4575	2550
Total Needs	54150	100000	64575	33050
Less: Opening Inventory	6075	13650	9000	4575
Required Production in units	48075	86350	55575	28475
Milo Company
Direct Materials Budget
Particulars	July	August	September	Quarter
Required Production in Units	48075	86350	55575	190000
Units of Raw materials needed per unit	4	4	4	4
Units of Raw materials needed to Meet production	192300	345400	222300	760000
Add: Required ending Inventory (50% of Following month Production Needs)	172700	111150	56950	56950
Total units of raw materials needed	365000	456550	279250	816950
Less: Opening Inventory of Gilden	96150	172700	111150	96150
Units of raw Materials to be Purchased	268850	283850	168100	720800
Milo Company
Cost of Direct Materials purchases Budget
Particulars	July	August	September	Quarter
Units of raw Materials to be Purchased	268850	283850	168100	720800
Unit cost of raw materials	$0.60	$0.60	$0.60	$0.60
Cost of Raw Material to be purchased	$1,61,310	$1,70,310	$1,00,860	$4,32,480
Milo Company
Schedule of expected cash disbursements
Particulars	July	August	September	Quarter
Accounts Payable, July 1	$52,890			$52,890
July Purchases	$80,655	$80,655		$1,61,310
August Purchases		$85,155	$85,155	$1,70,310
September Purchases			$50,430	$50,430
Total Cash disbursements	$1,33,545	$1,65,810	$1,35,585	$4,34,940