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	39,500	October	29,500
August	89,000	November	16,000
September	58,000	December	16,500

The selling price of the beach umbrellas is $10 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 $380,000.

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	93,850	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 $68,120.

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	39500	89000	58000	186500
Selling Price per unit	$10.00	$10.00	$10.00	$10.00
Estimated Sales	$395,000.00	$890,000.00	$580,000.00	$1,865,000.00

Solution 2:

Milo Company - Computation of Estimated Cash Collection for 3rd Quarter
Particulars	July	August	September	Total
Accounts receivables, June 30	$380,000.00			$380,000.00
July Sales	$118,500.00	$256,750.00		$375,250.00
August Sales		$267,000.00	$578,500.00	$845,500.00
September sales			$174,000.00	$174,000.00
Total Cash collection	$498,500.00	$523,750.00	$752,500.00	$1,774,750.00

Solution 3:

Milo Company - Computation of Estimated Production of Beach Umbrellas
Particulars	July	August	September	October
Sales in Units	39500	89000	58000	29500
Required ending Inventory (15% of Following month Sale)	13350	8700	4425	2400
Total Needs	52850	97700	62425	31900
Opening Inventory	5925	13350	8700	4425
Estimated Production (Sales + Ending Inventory - Opening Inventory)	46925	84350	53725	27475

Solution 4:

Milo Company - Computation of quantity of Gilden to be purchased in 3rd quarter
Particulars	July	August	September	Total
Estimated Production	46925	84350	53725	185000
Required qty of Gilder per unit (In meters)	4	4	4	4
Total requirement of Gilden	187700	337400	214900	740000
Required ending Inventory (50% of Following month Production Needs)	168700	107450	54950	54950
Total units of raw materials needed	356400	444850	269850	794950
Opening Inventory of Gilden	93850	168700	107450	93850
Quantity of Gilden to be Purchased	262550	276150	162400	701100

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	262550	276150	162400	701100
Cost per unit	$0.80	$0.80	$0.80	$0.80
Cost of Raw Material Purchase	$210,040.00	$220,920.00	$129,920.00	$560,880.00

Solution 6:

Milo Company - Computation of expected cash disbursement
Particulars	July	August	September	Total
Accounts Payable, June 30	$68,120.00			$68,120.00
July Purchases	$105,020.00	$105,020.00		$210,040.00
August Purchases		$110,460.00	$110,460.00	$220,920.00
September Purchases			$64,960.00	$64,960.00
Total Cash disbursements	$173,140.00	$215,480.00	$175,420.00	$564,040.00