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:

1. The Marketing Department has estimated sales as follows for the remainder of the year (in units):

July	41,000	October	31,000
August	92,000	November	17,500
September	61,000	December	18,000

The selling price of the beach umbrellas is $13 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 $533,000.

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	97,300	feet
September 30	?	feet

Gilden costs $0.60 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 $53,790.

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

Answer -

1. Answer -

	July	August	September	Quarter
Budgeted units sales	41000	92000	61000	194000
Selling price per unit	$13	$13	$13	$13
Budgeted sales	$533,000	$1,196,000	$793,000	$2,522,000

Calculation:

July:

Budgeted sales = Budgeted units sales * Selling price per unit

= 41000 units * $13 per unit

= $533000

August:

Budgeted sales = Budgeted units sales * Selling price per unit

= 92000 units * $13 per unit

= $1196000

September:

Budgeted sales = Budgeted units sales * Selling price per unit

= 61000 units * $13 per unit

= $793000

2. Answer -

	July	August	September	Quarter
Accounts receivable, June 30	$346,450			$346,450
July sales	$159,900	$346,450		$506,350
August sales		$358,800	$777,400	$1,136,200
September sales			$237,900	$237,900
Total cash collections	$506,350	$705,250	$1,015,300	$2,226,900

Calculation:

Accounts receivable, June 30 = June sales * 65%

= $533000 * 65%

= $346450

July:

July sales collection in July = July sales * 30%

= $533000 * 30%

= $159900

August:

July sales collection in August = July sales * 65%

= $533000 * 65%

= $346450

August sales collection in August = August sales * 30%

= $1196000 * 30%

= $358800

September:

August sales collection in August = July sales * 65%

= $1196000 * 65%

= $777400

August sales collection in August = August sales * 30%

= $793000 * 30%

= $237900

3. Answer -

	July	August	September	Quarter
Budgeted units sales	41000	92000	61000	194000
Add: Desired ending finished goods inventory	13800	9150	4650	4650
Total needs	54800	101150	65650	198650
Less: Beginning finished goods inventory	6150	13800	9150	6150
Required production in units	48650	87350	56500	192500

Calculation:

June:

Desired ending finished goods inventory = July sales in unit * 15%

= 41000 units * 15%

= 6150 units

July:

Desired ending finished goods inventory = August sales in unit * 15%

= 92000 units * 15%

= 13800 units

Required production in units = Budgeted units sales + Desired ending finished goods inventory - Beginning finished goods inventory

= 41000 units + 13800 units - 6150 units

= 48650 units

August:

Desired ending finished goods inventory = September sales in unit * 15%

= 61000 units * 15%

= 9150 units

Required production in units = Budgeted units sales + Desired ending finished goods inventory - Beginning finished goods inventory

= 92000 units + 9150 units - 13800 units

= 87350 units

September:

Desired ending finished goods inventory = October sales in unit * 15%

= 31000 units * 15%

= 4650 units

Required production in units = Budgeted units sales + Desired ending finished goods inventory - Beginning finished goods inventory

= 61000 units + 4650 units - 9150 units

= 56500 units

October:

Desired ending finished goods inventory = November sales in unit * 15%

= 17500 units * 15%

= 2625 units

Required production in units = Budgeted units sales + Desired ending finished goods inventory - Beginning finished goods inventory

= 31000 units + 2625 units - 4650 units

= 28975 units

4. Answer -

	July	August	September	Quarter
Required production in units of finished goods	48650	87350	56500	192500
Units of raw materials needed per unit of finished goods	4	4	4	4
Units of raw materials needed to meet production	194600	349400	226000	770000
Add: Desired ending raw materials inventory	174700	113000	57950	57950
Total units of raw materials needed	369300	462400	283950	827950
Less: Beginning raw materials inventory	97300	174700	113000	97300
Units of raw materials to be purchased	272000	287700	170950	730650

Calculation:

July:

Units of raw materials needed to meet production = Required production in units of finished goods * Units of raw materials needed per unit of finished goods

= 48650 units * 4 feet

= 194600 feet

Desired ending raw materials inventory = August units of raw materials needed to meet production * 50%

= 349400 feet * 50%

= 174700 feet

Units of raw materials to be purchased = Units of raw materials needed to meet production + Desired ending raw materials inventory - Beginning raw materials inventory

= 194600 feet + 174700 feet - 97300 feet

= 272000 feet

August:

Units of raw materials needed to meet production = Required production in units of finished goods * Units of raw materials needed per unit of finished goods

= 87350 units * 4 feet

= 349400 feet

Desired ending raw materials inventory = September units of raw materials needed to meet production * 50%

= 226000 feet * 50%

= 113000 feet

Units of raw materials to be purchased = Units of raw materials needed to meet production + Desired ending raw materials inventory - Beginning raw materials inventory

= 349400 feet + 113000 feet - 174700 feet

= 287700 feet

September:

Units of raw materials needed to meet production = Required production in units of finished goods * Units of raw materials needed per unit of finished goods

= 56500 units * 4 feet

= 226000 feet

Desired ending raw materials inventory = October units of raw materials needed to meet production * 50%

= 115900 feet * 50%

= 57950 feet

Units of raw materials to be purchased = Units of raw materials needed to meet production + Desired ending raw materials inventory - Beginning raw materials inventory

= 226000 feet + 57950 feet - 113000 feet

= 170950 feet

October:

Units of raw materials needed to meet production = Required production in units of finished goods * Units of raw materials needed per unit of finished goods

= 28975 units * 4 feet

= 115900 feet

5. Answer -

	July	August	September	Quarter
Units of raw materials to be purchased	272000	287700	170950	730650
Unit cost of raw materials	$0.60	$0.60	$0.60	$0.60
Cost of raw materials to be purchased	$163,200	$172,620	$102,570	$438,390

Calculation:

July:

Cost of raw materials to be purchased = Units of raw materials to be purchased * Unit cost of raw materials

= 272000 feet * $0.60 per feet

= $163200

August:

Cost of raw materials to be purchased = Units of raw materials to be purchased * Unit cost of raw materials

= 287700 feet * $0.60 per feet

= $172620

September:

Cost of raw materials to be purchased = Units of raw materials to be purchased * Unit cost of raw materials

= 170950 feet * $0.60 per feet

= $102570

6. Answer -

	July	August	September	Quarter
Accounts payable, June 30	$53,790			$53,790
July purchases	$81,600	$81,600		$163,200
August purchases		$86,310	$86,310	$172,620
September purchases			$51,285	$51,285
Total cash disbursements	$135,390	$167,910	$137,595	$440,895

Calculation:

July:

July purchases cash paid in July = July purchases * 50%

= $163200 * 50%

= $81600

August:

July purchases cash paid in August = July purchases * 50%

= $163200 * 50%

= $81600

August purchases cash paid in August = August purchases * 50%

= $172620 * 50%

= $86310

September:

August purchases cash paid in September = August purchases * 50%

= $172620 * 50%

= $86310

September purchases cash paid in September = September purchases * 50%

= $102570 * 50%

= $51285