Question

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	38,000	October	28,000
August	86,000	November	14,500
September	55,000	December	15,000

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 $455,000.

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	90,400	feet
September 30	?	feet

5. 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 $48,390.

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	38000	86000	55000	179000
Selling Price per unit	$13.00	$13.00	$13.00	$13.00
Budgeted Sales	$4,94,000	$11,18,000	$7,15,000	$23,27,000
Milo Company
Schedule of Expected Cash Collection for 3rd Quarter
Particulars	July	August	September	Quarter
Accounts receivables, June 30	$2,95,750			$2,95,750
July Sales	$1,48,200	$3,21,100		$4,69,300
August Sales		$3,35,400	$7,26,700	$10,62,100
September sales			$2,14,500	$2,14,500
Total Cash collection	$4,43,950	$6,56,500	$9,41,200	$20,41,650
Milo Company
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	38000	86000	55000	28000
Add: Required ending Inventory (15% of Following month Sale)	12900	8250	4200	2175
Total Needs	50900	94250	59200	30175
Less: Opening Inventory	5700	12900	8250	4200
Required Production in units	45200	81350	50950	25975
Milo Company
Direct Materials Budget
Particulars	July	August	September	Quarter
Required Production in Units	45200	81350	50950	177500
Units of Raw materials needed per unit	4	4	4	4
Units of Raw materials needed to Meet production	180800	325400	203800	710000
Add: Required ending Inventory (50% of Following month Production Needs)	162700	101900	51950	51950
Total units of raw materials needed	343500	427300	255750	761950
Less: Opening Inventory of Gilden	90400	162700	101900	90400
Units of raw Materials to be Purchased	253100	264600	153850	671550
Milo Company
Cost of Direct Materials purchases Budget
Particulars	July	August	September	Quarter
Units of raw Materials to be Purchased	253100	264600	153850	671550
Unit cost of raw materials	$0.60	$0.60	$0.60	$0.60
Cost of Raw Material to be purchased	$1,51,860	$1,58,760	$92,310	$4,02,930
Milo Company
Schedule of expected cash disbursements
Particulars	July	August	September	Quarter
Accounts Payable, June 30	$48,390			$48,390
July Purchases	$75,930	$75,930		$1,51,860
August Purchases		$79,380	$79,380	$1,58,760
September Purchases			$46,155	$46,155
Total Cash disbursements	$1,24,320	$1,55,310	$1,25,535	$4,05,165