Question

In: Accounting

Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and...

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 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.

  1. 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.

  1. 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.

  2. 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
  1. 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.

Solutions

Expert Solution

1.

Sales Budget
July August September Quarter
Expected Sales units 41000 92000 61000 194000
Sales Price per unit $          13.00 $           13.00 $             13.00
Budgeted Sales Revenue $     533,000 $   1,196,000 $         793,000 $   2,522,000

2.

Cash collections schedule
July August September Quarter
June Sales $     346,450 $       346,450
July Sales $     159,900 $       346,450 $       506,350
Aug Sales $       358,800 $         777,400 $    1,136,200
Sep Sales $         237,900 $       237,900
Total Cash Collections $     506,350 $      705,250 $     1,015,300 $   2,226,900

3.

Production Budget
July August September Quarter October
Budgeted Sales units 41000 92000 61000 194000 31000
Add : Closing Stock Required 13800 9150 4650 4650 2625
Total Goods Required 54800 101150 65650 198650 33625
Less : Opening Stock 6150 13800 9150 6150 4650
Production Required 48650 87350 56500 192500 28975

4. & 5.

Direct Material Budget
July August September Quarter October
Production Required 48650 87350 56500 192500 28975
Raw Material Per unit (Gilden) 4 4 4 4
Raw Material for Production 194600 349400 226000 770000 115900
Add : Closing Stock Required 174700 113000 57950 57950
Total Material Required 369300 462400 283950 827950
Less : Opening Stock 97300 174700 113000 97300
Units of raw material to be purchased 272000 287700 170950 730650
Rate per feet $            0.60 $             0.60 $               0.60
Cost of material to be purchased $     163,200 $      172,620 $         102,570 $       438,390

6.

Cash Disbursement for Materials
July August September Quarter
Paid in following month $        53,790 $         81,600 $           86,310 $       221,700
Paid in same month $        81,600 $         86,310 $           51,285 $       219,195
Total Cash Disbursements $     135,390 $      167,910 $         137,595 $       440,895

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