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:

1. 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.

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 $300,000.

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	72,000	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 $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

Solutions:

Milo Company
Sales Budget
Particulars	July	August	September	Quarter
Budgeted Unit sales	30000	70000	50000	150000
Selling Price per unit	$12.00	$12.00	$12.00	$12.00
Budgeted Sales	$3,60,000	$8,40,000	$6,00,000	$18,00,000
Milo Company
Schedule of Expected Cash Collection for 3rd Quarter
Particulars	July	August	September	Quarter
Accounts receivables, June 30	$1,95,000			$1,95,000
July Sales	$1,08,000	$2,34,000		$3,42,000
August Sales		$2,52,000	$5,46,000	$7,98,000
September sales			$1,80,000	$1,80,000
Total Cash collection	$3,03,000	$4,86,000	$7,26,000	$15,15,000
Milo Company
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	30000	70000	50000	20000
Add: Required ending Inventory (15% of Following month Sale)	10500	7500	3000	1500
Total Needs	40500	77500	53000	21500
Less: Opening Inventory	4500	10500	7500	3000
Required Production in units	36000	67000	45500	18500
Milo Company
Direct Materials Budget
Particulars	July	August	September	Quarter
Required Production in Units	36000	67000	45500	148500
Units of Raw materials needed per unit	4	4	4	4
Units of Raw materials needed to Meet production	144000	268000	182000	594000
Add: Required ending Inventory (50% of Following month Production Needs)	134000	91000	37000	37000
Total units of raw materials needed	278000	359000	219000	631000
Less: Opening Inventory of Gilden	72000	134000	91000	72000
Units of raw Materials to be Purchased	206000	225000	128000	559000
Milo Company
Cost of Direct Materials purchases Budget
Particulars	July	August	September	Quarter
Units of raw Materials to be Purchased	206000	225000	128000	559000
Unit cost of raw materials	$0.80	$0.80	$0.80	$0.80
Cost of Raw Material to be purchased	$1,64,800	$1,80,000	$1,02,400	$4,47,200
Milo Company
Schedule of expected cash disbursements
Particulars	July	August	September	Quarter
Accounts Payable, June 30	$76,000			$76,000
July Purchases	$82,400	$82,400		$1,64,800
August Purchases		$90,000	$90,000	$1,80,000
September Purchases			$51,200	$51,200
Total Cash disbursements	$1,58,400	$1,72,400	$1,41,200	$4,72,000