Question

1. 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: a. The Marketing Department has estimated sales as follows for the remainder of the year (in units): July 30,000 October 20,000 August 70,000 November 10,000 September 50,000 December 10,000 ________________________________________ The selling price of the beach umbrellas is $12 per unit. b. 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 $300,000. 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 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 72,000 feet September 30 ? feet ________________________________________ e. 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 $76,000.

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

Sales Budget for Quarter 3
	July	August	September	Quarter 3
Sales(in units)	30000	70000	50000	150000
Sales Price per unit	$                          12.00	$                12.00	$                   12.00	$                        12.00
Sales(in dollars)	$                      360,000	$            840,000	$               600,000	$                 1,800,000
Cash collection Budget for Quarter 3
	July	August	September	Quarter 3
Sales(in dollars)	$                      360,000	$            840,000	$               600,000	$                 1,800,000
30% collection in the month of sale(Sales in current month*30%)	$                      108,000	$            252,000	$               180,000	$                    540,000
65% collection in the month of sale(Sales in previous month*65%)	$                      195,000	$            234,000	$               546,000	$                    975,000
Total Collection	$                      303,000	$            486,000	$               726,000	$                 1,515,000
Production Budget for Quarter 3
	July	August	September	Quarter 3
Sales	30,000	70,000	50,000	150,000
Desired Ending Inventory(15% of next period Sales)	10,500	7,500	3,000	3,000
Total needs	40,500	77,500	53,000	153,000
Less:Beginning Inventory	(4,500)	(10,500)	(7,500)	(4,500)
Units Produced	36,000	67,000	45,500	148,500
Raw Material Purchase Budget for Quarter 3(For Gilden)
	July	August	September	Quarter 3
Units Produced	36,000	67,000	45,500	148,500
Desired Ending Inventory(50% of next period Production needs)	33,500	22,750	9,250	9,250
Total needs	69,500	89,750	54,750	157,750
Less:Beginning Inventory	(18,000)	(33,500)	(22,750)	(18,000)
Raw Material Purchase(in ft)	51,500	56,250	32,000	139,750
Raw Material Cost Budget for Quarter 3(For Gilden)
	July	August	September	Quarter 3
Raw Material Purchase(in ft)	51,500	56,250	32,000	139,750
Multiply:Cost of raw material($0.80 per ft)	$                            0.80	$                  0.80	$                     0.80	$                          0.80
Cost of Raw Material	$                        41,200	$              45,000	$                 25,600	$                    111,800
Cash Disbursement for Quarter 3(For Gilden)
	July	August	September	Quarter 3
Cost of Raw Material	41,200	45,000	25,600	111,800
50% payment in the month of purchase(Purchase in current month*50%)	$                        20,600	$              22,500	$                 12,800	$                      55,900
50% payment in the month of purchase(Purchase in next month*50%)	$                        76,000	$              20,600	$                 22,500	$                    119,100
Total	$                        96,600	$              43,100	$                 35,300	$                    175,000