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: The Marketing Department has estimated sales as follows for the remainder of the year (in units): July 33,500 October 23,500 August 77,000 November 10,000 September 46,000 December 10,500 The selling price of the beach umbrellas is $10 per unit. 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 $260,000. 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. 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 80,050 feet September 30 ? feet 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 $53,720. 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	Estimated sales
				July	August	September	Total
	Units estimated			33500	77000	46000	156500
	Selling price per unit			10	10	10	10
	Budgeted sales			335000	770000	460000	1565000
2	Expected cash collections:
				July	August	September	Total
	Budgeted sales			335000	770000	460000	1565000
	Collcection pattern
	30% in the month of sale			100500	231000	138000
	65% in the follwing month			169000	217750	500500
				(260000*0.65)	(335000*0.65)	(770000*0.65)
	Total collections			269500	448750	638500	1356750
3	Beach umbrellas to be produced:
				July	August	September	October
	Units estimated			33500	77000	46000	23500
	Add: Ending finished goods inventory			11550	6900	3525	1500
				(77000*15%)	(46000*15%)	(23500*15%)	(10000*15%)
	Total units required			45050	83900	49525	25000
	Less: Beginning Finished goods inventory			5025	11550	6900	3525
				(33500*15%)	(77000*15%)	(46000*15%)	(23500*15%)
	Umbrellas to be produced			40025	72350	42625	21475
4	Gilden needs to be purchased:
				July	August	September	Total
	Umbrellas to be produced			40025	72350	42625	155000
	Gilden required (In feet) per umbrella			4	4	4
	Gilden required in total			160100	289400	170500	620000
	Add: Ending inventory			144700	85250	42950
				(289400*50%)	(170500*50%)	(21475*4*50%)
				304800	374650	213450
	Less: Beginning inventory			80050	144700	85250
				(160100*50%)	(289400*50%)	(170500*50%)
	Gilden needs to be purchased			224750	229950	128200	582900
5	Cost of raw material purchases:
				July	August	September	Total
	Gilden needs to be purchased			224750	229950	128200	582900
	Cost per foot			0.8	0.8	0.8
	Cost of raw material purchases			179800	183960	102560	466320
6	Expected cash disbursements:
				July	August	September	Total
	Cost of raw material purchases			179800	183960	102560	466320
	Disbursement pattern:
	One-half in the month of purchase			89900	91980	51280
	One-half in the following month			53720	89900	91980
	Total disbursements			143620	181880	143260	468760