Question

Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4]

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 33,500 October 23,500 August 77,000 November 10,000 September 46,000 December 10,500 The selling price of the beach umbrellas is $10 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 $260,000. 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 80,050 feet September 30 ? feet Gilden costs $0.80 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 $53,720.

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

	Milo Company
	Sales
	July	33500
	August	77000
	September	46000
	October	23500
	November	10000
	December	10500
	June Sales	$ 260,000.00
		Milo Company
		Sales Budget
		July	August	September	Quarter
	Budgeted unit Sales	33500	77000	46000	156500
	Selling Price per unit	$            10.00	$                10.00	$            10.00	$                10.00
	Budgeted Sales	$ 335,000.00	$      770,000.00	$ 460,000.00	$ 1,565,000.00
		Milo Company
		Schedule of Expected Cash collection
		July	August	September	Quarter
	Accounts receivable June 30th($260000*65%)	$ 169,000.00			$      169,000.00
	July Sales=($335000*35%) in July and ($335000*65%) in August	$ 100,500.00	$      217,750.00		$      318,250.00
	August Sales=($770000*30%) in August and ($770000*65%) in September		$      231,000.00	$ 500,500.00	$      731,500.00
	September Sales=($460000*30%) in September			$ 138,000.00	$      138,000.00
	Total Cash Collectons	$ 269,500.00	$      448,750.00	$ 638,500.00	$ 1,356,750.00
		Milo Company
		Production Budget
		July	August	September	Quarter	October
	Budgeted Unit sales	33500	77000	46000	156500	23500
	Ending Goods Inventory=(77000*15%) in July,(46000*15%) in August,(23500*15%) in September	11550	6900	3525	3525	1500
	Total Needs	45050	83900	49525	160025	25000
	Beginning Goods Inventory=(33500*15%) in July	5025	11550	6900	5025	3525
	Required Production	40025	72350	42625	155000	21475
		Milo Company
		Direct Material Budget
		July	August	September	Quarter	October
	Required Production	40025	72350	42625	155000	21475
	Gilden per unit(Feet)	4	4	4	4	4
	Production needed=(A)	160100	289400	170500	620000	85900
	Ending Inventory=(289400*50%) in July,(170500*50%) in September,(85900*50%)=(B)	144700	85250	42950	42950
	Total needed(C )=(A)+(B)	304800	374650	213450	662950
	Beginning Inventory=(D)	80050	144700	85250	80050
	Material Needed=(E )=(C )-(D)	224750	229950	128200	582900
	Cost Per feet=(F)	$               0.80	$                   0.80	$               0.80	$                   0.80
	Total material cost=( E )*(F)	$ 179,800.00	$      183,960.00	$ 102,560.00	$      466,320.00
	Working
	October Required Production
	Budgeted unit sales	23500
	Ending goods Inventory	1500
	Total Need	25000
	Beginning Inventory	3525
	Required Production	21475
		Milo Company
		Schedule of Expected Cash disbursement
		July	August	September	Quarter
	Accounts Payable,June 30th	$    53,720.00			$        53,720.00
	July Purchases	$    89,900.00	$        89,900.00		$      179,800.00
	August Purchases		$        91,980.00	$    91,980.00	$      183,960.00
	September Purchases			$    51,280.00	$        51,280.00
	Total Cash Disbursements	$ 143,620.00	$      181,880.00	$ 143,260.00	$      468,760.00