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:

1. 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.

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 $504,000.

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	91,550	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 $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

Solutions:

Milo Company
Sales Budget
Particulars	July	August	September	Quarter
Budgeted Unit sales	38500	87000	56000	181500
Selling Price per unit	$14.00	$14.00	$14.00	$14.00
Budgeted Sales	$5,39,000	$12,18,000	$7,84,000	$25,41,000
Milo Company
Schedule of Expected Cash Collection for 3rd Quarter
Particulars	July	August	September	Quarter
Accounts receivables, June 30	$3,27,600			$3,27,600
July Sales	$1,61,700	$3,50,350		$5,12,050
August Sales		$3,65,400	$7,91,700	$11,57,100
September sales			$2,35,200	$2,35,200
Total Cash collection	$4,89,300	$7,15,750	$10,26,900	$22,31,950
Milo Company
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	38500	87000	56000	28500
Add: Required ending Inventory (15% of Following month Sale)	13050	8400	4275	2250
Total Needs	51550	95400	60275	30750
Less: Opening Inventory	5775	13050	8400	4275
Required Production in units	45775	82350	51875	26475
Milo Company
Direct Materials Budget
Particulars	July	August	September	Quarter
Required Production in Units	45775	82350	51875	180000
Units of Raw materials needed per unit	4	4	4	4
Units of Raw materials needed to Meet production	183100	329400	207500	720000
Add: Required ending Inventory (50% of Following month Production Needs)	164700	103750	52950	52950
Total units of raw materials needed	347800	433150	260450	772950
Less: Opening Inventory of Gilden	91550	164700	103750	91550
Units of raw Materials to be Purchased	256250	268450	156700	681400
Milo Company
Cost of Direct Materials purchases Budget
Particulars	July	August	September	Quarter
Units of raw Materials to be Purchased	256250	268450	156700	681400
Unit cost of raw materials	$0.60	$0.60	$0.60	$0.60
Cost of Raw Material to be purchased	$1,53,750	$1,61,070	$94,020	$4,08,840
Milo Company
Schedule of expected cash disbursements
Particulars	July	August	September	Quarter
Accounts Payable, July 1	$49,290			$49,290
July Purchases	$76,875	$76,875		$1,53,750
August Purchases		$80,535	$80,535	$1,61,070
September Purchases			$47,010	$47,010
Total Cash disbursements	$1,26,165	$1,57,410	$1,27,545	$4,11,120