Question

Milo Company manufactures beach umbrellas. The company is now preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation:

a.	The Marketing Department has estimated sales as follows for the remainder of the year (in units):

July	37,000	October	27,000
August	77,000	November	17,000
September	57,000	December	17,000

The selling price of the beach umbrellas is $10 per unit. Sales in June were 32,000 units.

b.	All sales are on account. On the basis of past experience, sales are collected in the following pattern:

40%	in the month of sale
55%	in the month following sale
5%	uncollectible

c.	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.
d.	Each beach umbrella requires 4 metres of Gilden, a material that is sometimes hard to get. Therefore, the company requires that the inventory of Gilden on hand at the end of each month 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 as follows:

June 30	86,000	metres
September 30	?	metres

e.	Gilden costs $0.80 per metre. One-half of a month’s purchases of Gilden are paid for in the month of purchase; the remainder are paid for in the following month. The accounts payable on July 1 for purchases of Gilden during June will be $83,000.

Required:

1.	Prepare a sales budget, by month and in total, for the third quarter. Also, prepare a schedule of expected cash collections, by month and in total, for the third quarter.

       

    

2.	Prepare a production budget for each of the months July to October.

       

3.	Prepare a materials purchases budget for Gilden, by month and in total, for the third quarter. Also, prepare a schedule of expected cash payments for Gilden, by month and in total, for the third quarter.

      

    

Answer 1

Preparation of budgets are as follows:-