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	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.

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 $533,000.

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	97,300	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 $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.

Answer 1

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