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	32,500	October	22,500
August	75,000	November	9,000
September	44,000	December	9,500

The selling price of the beach umbrellas is $14 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 $336,000.

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	77,750	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 $38,490.

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			32,500	75,000	44,000	151,500
	Selling price per unit			14	14	14	14
	total sales			455000	1050000	616000	2121000
2)	Expected cash collection
				july	august	sept	quarter
From june sales (336,000*65%)				218400			218400
from july sales(455000*30%;65%)				136500	295750		432250
From aug sales (1,050,000*30%;65%)					315000	682500	997500
From sept sales (616,000*30%)						184800	184800
total cash collections				354900	610750	867300	1832950
3)	production budget
				july	august	sept	october
	Estimated sale units			32,500	75,000	44,000	22,500
Add: Ending inventory				11250	6600	3375	1350
total needs				43,750	81,600	47,375	23,850
less :opening inventory				-4875	-11,250	-6,600	-3375
production required				38,875	70,350	40,775	20,475
4)
				july	august	sept	Quarter
production required				38,875	70,350	40,775	150,000
feet required per umbrella				4	4	4	4
production needs				155500	281400	163100	600000
Add:Ending inventory				140700	81550	40950	40,950
total needs				296200	362950	204050	640950
less:Opening inventory				-77750	-140,700	-81,550	-77,750
total materials purchased				218450	222250	122500	563200
5)	cost of raw materials purchases
				july	august	sept	Quarter
total materals purchased				218450	222250	122500	563200
cost per feet				$0.60	$0.60	$0.60	$0.60
Materials cost				$131,070.00	$133,350.00	$73,500.00	$337,920.00
6)	Cash disbursement
				july	august	sept	Quarter
accounts payable				38,490			38,490
From july sales				$65,535.00	$65,535.00		$131,070.00
from aug sales					$66,675.00	$66,675.00	133350
from sept sales						$36,750.00	36750
total cash disrbursement				104,025	132210	103425	339,660