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	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.

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 $533,000.

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	97,300	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 $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.

Answer 1

1	Estimated Sales
		Month	Units	Sales price per unit	Total Sales
		July	41,000	13	533,000
		Aug	92,000	13	1,196,000
		Sep	61,000	13	793,000
					2,522,000
2	Expected Cash collection
			July	Aug	Sep	Total
		65% of previous month	346,450	346,450	777,400	1,470,300
		30% of same month	159,900	358,800	237,900	756,600
		Total	506,350	705,250	1,015,300	2,226,900
3	Productions required
			July	Aug	Sep	Oct
		Opening stock (15% of same month sale)- A	6,150	13,800	9,150	4,650
		Expected sales for the month – B	41,000	92,000	61,000	31,000
		Closing stock (15% of successive month sale) -C	13,800	9,150	4,650	2,625
		Production Required for the month (B+C-A)	48,650	87,350	56,500	28,975
4	Raw materials to be purchases (in Feets)
			July	Aug	Sep	Total
		Raw materials required for the month (4*Production in units) -A	194,600	349,400	226,000	115,900
		Opening stock (Previous month Closing stock) – B	97,300	174,700	113,000
		Closing stock (50% of successive month requirement)-C	174,700	113,000	57,950
		Raw materials to be prucased (A+C-B)	272,000	287,700	170,950	730,650
5	Raw materials cost for the purchases
			July	Aug	Sep	Total
		Units to be purchased	272,000	287,700	170,950	730,650
		Unit cost	0.60	0.60	0.60	0.60
		Total cost of the purchases (Units*Unit cost)	163,200	172,620	102,570	438,390
6	Payment made to suppliers
			July	Aug	Sep	Total
		Payment for previous month purchases 50%	53,790	81,600	86,310	221,700
		Payment for the purchases – Same month (50%)	81,600	86,310	51,285	219,195
		Total Disbursement for materials	135,390	167,910	137,595	440,895