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	35,500	October	25,500
August	81,000	November	12,000
September	50,000	December	12,500

The selling price of the beach umbrellas is $14 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 $420,000.

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	84,650	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 $43,890.

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	Milo Company
	Estimated Sales
		July	August	September	3rd Quarter
	Budgeted sales units	35500	81000	50000	166500
	Selling price per unit $	14	14	14	14
	Estimated sales $	497000	1134000	700000	2331000
2	Expected Cash Collections
		July	August	September	3rd Quarter
	June sales	273000			273000
	July sales	149100	323050		472150
	August sales		340200	737100	1077300
	September sales			210000	210000
	Expected cash collections $	422100	663250	947100	2032450
3	Estimated Production
		July	August	September	October	November
	Budgeted sales in units	35500	81000	50000	25500	12000
	Desired ending FG inventory as percent of following month's sales (units)	15%	15%	15%	15%
	Ending FG inventory (units)	12150	7500	3825	1800
	Required production (units)	47650	88500	53825	27300
	Less: Beginning FG inventory (units)	5325	12150	7500	3825
	Estimated production (units)	42325	76350	46325	23475
4	Gilden Purchases
		July	August	September	3rd Quarter
	Estimated production (units)	42325	76350	46325	165000
	Gilden required per unit (feet)	4	4	4	4
	Gilden required for production (feet)	169300	305400	185300	660000
	Desired ending inventory of Gilden as percent of following month's production needs	50%	50%	50%
	Ending inventory of Gilden (feet)	152700	92650	46950	46950
	Total Gilden required (feet)	322000	398050	232250	706950
	Less: Beginning inventory of Gilden (feet)	84650	152700	92650	84650
	Quantity of Gilden to be purchased (feet)	237350	245350	139600	622300
5	Cost of Raw Material (Gilden) Purchases
		July	August	September	3rd Quarter
	Quantity of Gilden to be purchased (feet)	237350	245350	139600	622300
	Raw material (Gilden) cost per foot $	0.60	0.60	0.60	0.60
	Cost of raw material (Gilden) purchases $	142410	147210	83760	373380
6	Expected Cash Disbursements for Raw Material (Gilden) Purchases
		July	August	September	3rd Quarter
	June purchases	43890			43890
	July purchases	71205	71205		142410
	August purchases		73605	73605	147210
	September purchases			41880	41880
	Expected cash disbursements $	115095	144810	115485	375390