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	35,500	October	25,500
August	81,000	November	12,000
September	50,000	December	12,500

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 $420,000.

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	84,650	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 $43,890.

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. (2 decimals)

5. Calculate the cost of the raw material (Gilden) purchases by month and in total, for the third quarter. (2 decimals)

6. Calculate the expected cash disbursements for raw material (Gilden) purchases, by month and in total, for the third quarter.

Answer 1

Answers.

		July	August	September	TOTAL (III Quarter)
1)	Estimated Sales	$497,000	$1,134,000	$700,000	$2,331,000
		July	August	September	TOTAL (III Quarter)
2)	Expected Cash Collection	$422,100	$663,250	$947,100	$2,032,450
		July	August	September	August
3)	Umbrella Produced	42,325	76,350	46,325	23,475
		July	August	September	TOTAL (III Quarter)
4)	Gildon Purchased( in feet)	169,300	305,400	185,300	660,000
		July	August	September	TOTAL (III Quarter)
5)	Cost Of Raw material (Gildon)	$101,580	$183,240	$111,180	$396,000
		July	August	September	TOTAL (III Quarter)
6)	Expected Cash Disbursement of Raw material (Gildon)	$94,680	$142,410	$147,210	$384,300

Working Note as s basis for the Answers

	June	July	Aug	Sep	Oct	Nov	Dec
Units Sold	30000	35500	81000	50000	25500	12000	12500
SP Per unit	$14.00	$14.00	$14.00	$14.00	$14.00	$14.00	$14.00
Sales	$420,000	$497,000	$1,134,000	$700,000	$357,000	$168,000	$175,000
Collection
30% in the Month of Sale	$126,000	$149,100	$340,200	$210,000	$107,100	$50,400	$52,500
65% following the month of Sale		$273,000	$323,050	$737,100	$455,000	$232,050	$109,200
TOTAL		$422,100	$663,250	$947,100	$562,100	$282,450	$161,700
Finished Goods Opening Inventories		5325	12150	7500	3825	1800	1875
Finished Goods Closing Inventories	5325	12150	7500	3825	1800	1875	0
Umbrella Produced(Unit Sold+Closing-Opening)	36575	42325	76350	46325	23475	12075	10625
Gildon Purchased (in feet)	146300	169300	305400	185300	93900	48300	42500
Gildon Inventory Opening		84650	152700	92650	46950	24150	21250
Gildon Inventory Closing	84650	152700	92650	46950	24150	21250	0
Cost Of Raw material (Gildon)	$87,780	$101,580	$183,240	$111,180	$56,340	$28,980	$25,500
Accounts Payable	$43,890	$50,790	$91,620	$55,590	$28,170	$14,490	$12,750
Payment Same month-50%	$43,890	$50,790	$91,620	$55,590	$28,170	$14,490	$12,750
Payment Next month-50%		$43,890	$50,790	$91,620	$55,590	$28,170	$14,490
TOTAL Payment	$43,890	$94,680	$142,410	$147,210	$83,760	$42,660	$27,240