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	37,000	October	27,000
August	84,000	November	13,500
September	53,000	December	14,000

The selling price of the beach umbrellas is $11 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 $363,000.

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	88,100	feet
September 30	?	feet

5. 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 $62,120.

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

1)	Sales budget
				july	august	sept	quarter
	Estimated sale units			37,000	84,000	53,000	174,000
	Selling price per unit			11	11	11	11
	total sales			407000	924000	583000	1914000
2)	Expected cash collection
				july	august	sept	quarter
From june sales (363,000*65%)				235950			235950
from july sales(407000*30%;65%)				122100	264550		386650
From aug sales (924,000*30%;65%)					277200	600600	877800
From sept sales (583,000*30%)						174900	174900
total cash collections				358050	541750	775500	1675300
3)	production budget
				july	august	sept	october
	Estimated sale units			37,000	84,000	53,000	27,000
Add: Ending inventory				12600	7950	4050	2025
total needs				49,600	91,950	57,050	29,025
less :opening inventory				-5550	-12,600	-7,950	-4050
production required				44,050	79,350	49,100	24,975
4)
				july	august	sept	Quarter
production required				44,050	79,350	49,100	172,500
feet required per umbrella				4	4	4	4
production needs				176200	317400	196400	690000
Add:Ending inventory				158700	98200	49950	49,950
total needs				334900	415600	246350	739950
less:Opening inventory				-88100	-158,700	-98,200	-88,100
total materials purchased				246800	256900	148150	651850
5)	cost of raw materials purchases
				july	august	sept	Quarter
total materals purchased				246800	256900	148150	651850
cost per feet				$0.80	$0.80	$0.80	$0.80
Materials cost				$197,440.00	$205,520.00	$118,520.00	$521,480.00
6)	Cash disbursement
				july	august	sept	Quarter
accounts payable				62,120			62,120
From july sales				$98,720.00	$98,720.00		$197,440.00
from aug sales					$102,760.00	$102,760.00	205520
from sept sales						$59,260.00	59260
total cash disrbursement				160,840	201480	162020	524,340