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	46,000	October	36,000
August	86,000	November	26,000
September	66,000	December	26,000

The selling price of the beach umbrellas is $12 per unit. Sales in June were 41,000 units.

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

30%	in the month of sale
65%	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	104,000	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 $92,000.

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

Solution 1:

Milo Company - Computation of Estimated Sales for 3rd Quarter
Particulars	July	August	September	Total
Sales in Units	46000	86000	66000	198000
Selling Price per unit	$12.00	$12.00	$12.00	$12.00
Estimated Sales	$552,000.00	$1,032,000.00	$792,000.00	$2,376,000.00

Milo Company - Computation of Estimated Cash Collection for 3rd Quarter
Particulars	July	August	September	Total
Accounts receivables, June 30	$319,800.00			$319,800.00
July Sales	$165,600.00	$358,800.00		$524,400.00
August Sales		$309,600.00	$670,800.00	$980,400.00
September sales			$237,600.00	$237,600.00
Total Cash collection	$485,400.00	$668,400.00	$908,400.00	$2,062,200.00

Solution 2:

Milo Company - Computation of Estimated Production of Beach Umbrellas
Particulars	July	August	September	October
Sales in Units	46000	86000	66000	36000
Required ending Inventory (15% of Following month Sale)	12900	9900	5400	3900
Total Needs	58900	95900	71400	39900
Opening Inventory	6900	12900	9900	5400
Estimated Production (Sales + Ending Inventory - Opening Inventory)	52000	83000	61500	34500

Solution 3:

Milo Company - Computation of quantity of Gilden to be purchased in 3rd quarter
Particulars	July	August	September	Total
Estimated Production	52000	83000	61500	196500
Required qty of Gilder per unit (In meters)	4	4	4	4
Total requirement of Gilden	208000	332000	246000	786000
Required ending Inventory (50% of Following month Production Needs)	166000	123000	69000	69000
Total units of raw materials needed	374000	455000	315000	855000
Opening Inventory of Gilden	104000	166000	123000	104000
Quantity of Gilden to be Purchased	270000	289000	192000	751000

Milo Company - Computation of cost of Gilden to be purchased in 3rd quarter
Particulars	July	August	September	Total
Quantity of Gilden to be Purchased	270000	289000	192000	751000
Cost per unit	$0.80	$0.80	$0.80	$0.80
Cost of Raw Material Purchase	$216,000.00	$231,200.00	$153,600.00	$600,800.00

Milo Company - Computation of expected cash disbursement
Particulars	July	August	September	Total
Accounts Payable, June 30	$92,000.00			$92,000.00
July Purchases	$108,000.00	$108,000.00		$216,000.00
August Purchases		$115,600.00	$115,600.00	$231,200.00
September Purchases			$76,800.00	$76,800.00
Total Cash disbursements	$200,000.00	$223,600.00	$192,400.00	$616,000.00