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 38,500 October 28,500 August 87,000 November 15,000 September 56,000 December 15,500 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 $504,000. 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 91,550 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 $49,290. 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	38500	87000	56000	181500
Selling Price per unit	$14.00	$14.00	$14.00	$14.00
Estimated Sales	$539,000.00	$1,218,000.00	$784,000.00	$2,541,000.00

Solution 2:

Milo Company - Computation of Estimated Cash Collection for 3rd Quarter
Particulars	June	July	August	September	Total
Estimated Sales	$504,000.00	$539,000.00	$1,218,000.00	$784,000.00	$2,541,000.00
Cash Collection (30% in month of sales and 65% in following month)		$489,300.00	$715,750.00	$1,026,900.00	$2,231,950.00

Solution 3:

Milo Company - Computation of Estimated Production of Beach Umbrellas
Particulars	July	August	September	October
Sales in Units	38500	87000	56000	28500
Required ending Inventory (15% of Following month Sale)	13050	8400	4275	2250
Opening Inventory	5775	13050	8400	4275
Estimated Production (Sales + Ending Inventory - Opening Inventory)	45775	82350	51875	26475

Solution 4:

Milo Company - Computation of quantity of Gilden to be purchased in 3rd quarter
Particulars	July	August	September	Total
Estimated Production	45775	82350	51875	180000
Required qty of Gilder per unit (In feet)	4	4	4	4
Total requirement of Gilden	183100	329400	207500	720000
Required ending Inventory (50% of Following month Production Needs)	164700	103750	52950	52950
Opening Inventory of Gilden	91550	164700	103750	91550
Quantity of Gilden to be Purchased	256250	268450	156700	681400