Question

Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4]

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	34,500	October	24,500
August	79,000	November	11,000
September	48,000	December	11,500

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 $336,000.

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	82,350	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 $56,120.

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

Solution 1:

Milo Company - Computation of Estimated Sales for 3rd Quarter
Particulars	July	August	September	Total
Sales in Units	34500	79000	48000	161500
Selling Price per unit	$12.00	$12.00	$12.00	$12.00
Estimated Sales	$414,000.00	$948,000.00	$576,000.00	$1,938,000.00

Solution 2:

Milo Company - Computation of Estimated Cash Collection for 3rd Quarter
Particulars	July	August	September	Total
Accounts receivables, June 30	$218,400.00			$218,400.00
July Sales	$124,200.00	$269,100.00		$393,300.00
August Sales		$284,400.00	$616,200.00	$900,600.00
September sales			$172,800.00	$172,800.00
Total Cash collection	$342,600.00	$553,500.00	$789,000.00	$1,685,100.00

Solution 3:

Milo Company - Computation of Estimated Production of Beach Umbrellas
Particulars	July	August	September	October
Sales in Units	34500	79000	48000	24500
Required ending Inventory (15% of Following month Sale)	11850	7200	3675	1650
Total Needs	46350	86200	51675	26150
Opening Inventory	5175	11850	7200	3675
Estimated Production (Sales + Ending Inventory - Opening Inventory)	41175	74350	44475	22475

Solution 4:

Milo Company - Computation of quantity of Gilden to be purchased in 3rd quarter
Particulars	July	August	September	Total
Estimated Production	41175	74350	44475	160000
Required qty of Gilder per unit (In meters)	4	4	4	4
Total requirement of Gilden	164700	297400	177900	640000
Required ending Inventory (50% of Following month Production Needs)	148700	88950	44950	44950
Total units of raw materials needed	313400	386350	222850	684950
Opening Inventory of Gilden	82350	148700	88950	82350
Quantity of Gilden to be Purchased	231050	237650	133900	602600

Solution 5:

Milo Company - Computation of cost of Gilden to be purchased in 3rd quarter
Particulars	July	August	September	Total
Quantity of Gilden to be Purchased	231050	237650	133900	602600
Cost per unit	$0.80	$0.80	$0.80	$0.80
Cost of Raw Material Purchase	$184,840.00	$190,120.00	$107,120.00	$482,080.00

Solution 6:

Milo Company - Computation of expected cash disbursement
Particulars	July	August	September	Total
Accounts Payable, June 30	$56,120.00			$56,120.00
July Purchases	$92,420.00	$92,420.00		$184,840.00
August Purchases		$95,060.00	$95,060.00	$190,120.00
September Purchases			$53,560.00	$53,560.00
Total Cash disbursements	$148,540.00	$187,480.00	$148,620.00	$484,640.00