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	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

Solutions:

Milo Company
Sales Budget
Particulars	July	August	September	Quarter
Budgeted Unit sales	37000	84000	53000	174000
Selling Price per unit	$11.00	$11.00	$11.00	$11.00
Budgeted Sales	$4,07,000	$9,24,000	$5,83,000	$19,14,000
Milo Company
Schedule of Expected Cash Collection for 3rd Quarter
Particulars	July	August	September	Quarter
Accounts receivables, June 30	$2,35,950			$2,35,950
July Sales	$1,22,100	$2,64,550		$3,86,650
August Sales		$2,77,200	$6,00,600	$8,77,800
September sales			$1,74,900	$1,74,900
Total Cash collection	$3,58,050	$5,41,750	$7,75,500	$16,75,300
Milo Company
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	37000	84000	53000	27000
Add: Required ending Inventory (15% of Following month Sale)	12600	7950	4050	2025
Total Needs	49600	91950	57050	29025
Less: Opening Inventory	5550	12600	7950	4050
Required Production in units	44050	79350	49100	24975
Milo Company
Direct Materials Budget
Particulars	July	August	September	Quarter
Required Production in Units	44050	79350	49100	172500
Units of Raw materials needed per unit	4	4	4	4
Units of Raw materials needed to Meet production	176200	317400	196400	690000
Add: Required ending Inventory (50% of Following month Production Needs)	158700	98200	49950	49950
Total units of raw materials needed	334900	415600	246350	739950
Less: Opening Inventory of Gilden	88100	158700	98200	88100
Units of raw Materials to be Purchased	246800	256900	148150	651850
Milo Company
Cost of Direct Materials purchases Budget
Particulars	July	August	September	Quarter
Units of raw Materials to be Purchased	246800	256900	148150	651850
Unit cost of raw materials	$0.80	$0.80	$0.80	$0.80
Cost of Raw Material to be purchased	$1,97,440	$2,05,520	$1,18,520	$5,21,480
Milo Company
Schedule of expected cash disbursements
Particulars	July	August	September	Quarter
Accounts Payable, June 30	$62,120			$62,120
July Purchases	$98,720	$98,720		$1,97,440
August Purchases		$1,02,760	$1,02,760	$2,05,520
September Purchases			$59,260	$59,260
Total Cash disbursements	$1,60,840	$2,01,480	$1,62,020	$5,24,340