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	37,000	October	27,000
August	84,000	November	13,500
September	53,000	December	14,000

The selling price of the beach umbrellas is $11 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 $363,000.

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	88,100	feet
September 30	?	feet

5. 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 $62,120.

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

Required Budgets are as prepared below:

1. Sales Budget
Milo Company
Sales Budget
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
Sale Units (a)	37,000	84,000	53,000	174,000
*Price per unit (b)	$11	$11	$11	$11
Total Sales	$407,000	$924,000	$583,000	1,914,000
Milo Company
Schedule of expected Cash collections
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
June sales (363,000*.65)	235,950			235,950
July Sales	122,100	264,550		386,650
August sales		277,200	600,600	877,800
September sales			174,900	174,900
Total collections	358,050	541,750	775,500	1,675,300
2. Production Budget
Milo Company
Production Budget
For the quarter ended September 30
	Month
Particulars	July	August	September	Total	October	November
Sale Units (a)	37,000	84,000	53,000	174,000	27,000	13,500
Planned ending units (b)	12,600	7,950	4,050	4,050	2025
Beginning units (c )	5,550	12,600	7,950	5,550	4,050
Planned production units (d)= (a+b-c)	44,050	79,350	49,100	172,500	24,975
3. Raw material Budget
Milo Company
Raw Material Purchase Budget
For the quarter ended September 30
	Month
Particulars	July	August	September	Total	October
Planned production units (a)	44,050	79,350	49,100	172,500	24,975
*Direct Material required per unit (b)	4.0	4.0	4.0	4.0	4.0
Direct Material Required for production (c )	176,200	317,400	196,400	690,000	99,900
Budgeted ending Direct Material (d)	158,700	98,200	49,950	49,950
Beginning Direct Material (e )	88,100	158,700	98,200	88,100
Budgeted direct material purchase f= c+d-e	246,800	256,900	148,150	651,850
Cost per unit (g)	$0.80	$0.80	$0.80	$0.80
BudgetedDM purchases	$197,440	$205,520	$118,520	$521,480
Milo Company
Schedule of expected Cash payments
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
Beginning Accounts Payable	$62,120			$62,120
July purchases	$98,720	$98,720		$197,440
August Purchases		$102,760	$102,760	$205,520
September purchases			$59,260	$59,260
Total payments (a+b+c+d)	$160,840	$201,480	$162,020	$524,340