Question

In: Accounting

Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and...

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 41,000 October 31,000
August 92,000 November 17,500
September 61,000 December 18,000

The selling price of the beach umbrellas is $13 per unit.

  1. 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 $533,000.

  1. 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.

  2. 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 97,300 feet
September 30 ? feet
  1. 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 $53,790.

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.

Solutions

Expert Solution

1)

Estimated Sales
July Aug Sep Total
Units            41,000                92,000            61,000              194,000
Price                    13                        13                    13
Estimated Sales          533,000          1,196,000          793,000          2,522,000

2)

Estimated Cash Collection
July Aug Sep Total
In Same Month (30%)          159,900              358,800          237,900              756,600
In next month (65%)          346,450              346,450          777,400
Estimated Cash Collection          506,350              705,250      1,015,300              756,600

3)

Estimated Quantity of Umbrellas to be produced
July Aug Sep Oct
Estimates Sale Qty            41,000                92,000            61,000                31,000
+Month end Inventory of finsihed goods (15%of next month)            13,800                  9,150              4,650                  2,625
-Month end Inventory of finsihed goods kept in previou month            (6,150)              (13,800)            (9,150)                (4,650)
Estimated Quantity of Umbrellas to be produced            48,650                87,350            56,500                28,975

4)

Gilden to be purchased July Aug Sep Total
Estimated Quantity of Umbrellas to be produced 48650 87350 56500
Gilden per umbrella (feet) 4 4 4
Gilden Required for production 194600 349400 226000
+Gilden required for closing inventory 174700 113000 57950
-Gilden kept as inventory in previous month -97300 -174700 -113000
Gilden to be purchased 272000 287700 170950 730650

5)

July Aug Sep Total
Gilden to be purchased 272000 287700 170950
Cost per foot 0.6 0.6 0.6
Total cost 163200 172620 102570 438390

6)

July Aug Sep Total
Total cost 163200 172620 102570
Payment (current Month) 81600 86310 51285
Payment (previous month) 53790 81600 86310
Cash Disbursement 135390 167910 137595 440895

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