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: The Marketing Department has estimated sales as follows for the remainder of the year (in units): July 32,000 October 22,000 August 74,000 November 8,500 September 43,000 December 9,000 The selling price of the beach umbrellas is $13 per unit. 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 $299,000. 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. 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 76,600 feet September 30 ? feet Gilden costs $0.80 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 $50,120. Required: 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

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Milo Company
Production Budget	July	August	September	Total	October	November
Budgeted Sales units	32,000.00	74,000.00	43,000.00	149,000.00	22,000.00	8,500.00	See A
Add: Closing	11,100.00	6,450.00	3,300.00	3,300.00	1,275.00		B= 15% of A of next month.
Less: Opening	4,800.00	11,100.00	6,450.00	4,800.00	3,300.00		C= 15% of A of same month.
Production Budget	38,300.00	69,350.00	39,850.00	147,500.00	19,975.00		D
Answer 4
Material Purchase Budget	July	August	September	Total	October
Production Budget	38,300.00	69,350.00	39,850.00	147,500.00	19,975.00		See D
Material required per unit	4.00	4.00	4.00	4.00	4.00		E
Bamboo required	153,200.00	277,400.00	159,400.00	590,000.00	79,900.00		F=D*E
Add: Closing	138,700.00	79,700.00	76,600.00	76,600.00			G= 50% of F of next month.
Less: Opening	76,600.00	138,700.00	79,700.00	76,600.00			H= 50% of F of same month.
Material Purchase Budget	215,300.00	218,400.00	156,300.00	590,000.00			I
Answer 5
Cost of the raw material (Gilden) purchases	July	August	September	Total
Material Purchase Budget	215,300.00	218,400.00	156,300.00	590,000.00			See I
Cost per foot	0.80	0.80	0.80	0.80			J
Direct Material cost	172,240.00	174,720.00	125,040.00	472,000.00			K=I*J
Answer 6	July	August	September	Total
Expected cash disbursements for raw material purchases	172,240.00	174,720.00	125,040.00	472,000.00			See K
50% paid in same month	86,120.00	87,360.00	62,520.00	236,000.00			L=K*50%
50% paid in next month		86,120.00	87,360.00	173,480.00			M= 50% of K of previous month.
Payment of June accounts payable	50,120.00			50,120.00			N
Cash disbursements for raw material purchases	136,240.00	173,480.00	149,880.00	459,600.00			O=K+L+M