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:

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

July	35,000	October	25,000
August	80,000	November	11,500
September	49,000	December	12,000

The selling price of the beach umbrellas is $13 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 $377,000.

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	83,500	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 $42,990.

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
Sales Budget
Particulars	July	August	September	Quarter
Budgeted Unit sales	35000	80000	49000	164000
Selling Price per unit	$13.00	$13.00	$13.00	$13.00
Budgeted Sales	$4,55,000	$10,40,000	$6,37,000	$21,32,000

Solution 2:

Milo Company
Schedule of Expected Cash Collection for 3rd Quarter
Particulars	July	August	September	Quarter
Accounts receivables, June 30	$2,45,050			$2,45,050
July Sales	$1,36,500	$2,95,750		$4,32,250
August Sales		$3,12,000	$6,76,000	$9,88,000
September sales			$1,91,100	$1,91,100
Total Cash collection	$3,81,550	$6,07,750	$8,67,100	$18,56,400

Solution 3:

Milo Company
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	35000	80000	49000	25000
Add: Required ending Inventory (15% of Following month Sale)	12000	7350	3750	1725
Total Needs	47000	87350	52750	26725
Less: Opening Inventory	5250	12000	7350	3750
Required Production in units	41750	75350	45400	22975

Solution 4:

Milo Company
Direct Materials Budget
Particulars	July	August	September	Quarter
Required Production in Units	41750	75350	45400	162500
Units of Raw materials needed per unit	4	4	4	4
Units of Raw materials needed to Meet production	167000	301400	181600	650000
Add: Required ending Inventory (50% of Following month Production Needs)	150700	90800	45950	45950
Total units of raw materials needed	317700	392200	227550	695950
Less: Opening Inventory of Gilden	83500	150700	90800	83500
Units of raw Materials to be Purchased	234200	241500	136750	612450

Solution 5:

Milo Company
Cost of Direct Materials purchases Budget
Particulars	July	August	September	Quarter
Units of raw Materials to be Purchased	234200	241500	136750	612450
Unit cost of raw materials	$0.60	$0.60	$0.60	$0.60
Cost of Raw Material to be purchased	$1,40,520	$1,44,900	$82,050	$3,67,470

Solution 6:

Milo Company
Schedule of expected cash disbursements
Particulars	July	August	September	Quarter
Accounts Payable, July 1	$42,990			$42,990
July Purchases	$70,260	$70,260		$1,40,520
August Purchases		$72,450	$72,450	$1,44,900
September Purchases			$41,025	$41,025
Total Cash disbursements	$1,13,250	$1,42,710	$1,13,475	$3,69,435