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:

a. The Marketing Department has estimated sales as follows for the remainder of the year (in units):

July 38,000

October 28,000

August 86,000

September 55,000

November 14,500

December 15,000

The selling price of the beach umbrellas is $13 per unit.

b. 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 $455,000.

c. 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.

d. 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 90,400 feet

September 30 ? feet

e. 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 $48,390.

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	Milo Company
	Estimated Sales
		July	August	September	3rd Quarter
	Budgeted sales units	38000	86000	55000	179000
	Selling price per unit $	13	13	13	13
	Estimated sales $	494000	1118000	715000	2327000
2	Expected Cash Collections
		July	August	September	3rd Quarter
	June sales	295750			295750
	July sales	148200	321100		469300
	August sales		335400	726700	1062100
	September sales			214500	214500
	Expected cash collections $	443950	656500	941200	2041650
3	Estimated Production
		July	August	September	October	November
	Budgeted sales in units	38000	86000	55000	28000	14500
	Desired ending FG inventory as percent of following month's sales (units)	15%	15%	15%	15%
	Ending FG inventory (units)	12900	8250	4200	2175
	Required production (units)	50900	94250	59200	30175
	Less: Beginning FG inventory (units)	5700	12900	8250	4200
	Estimated production (units)	45200	81350	50950	25975
4	Gilden Purchases
		July	August	September	3rd Quarter
	Estimated production (units)	45200	81350	50950	177500
	Gilden required per unit (feet)	4	4	4	4
	Gilden required for production (feet)	180800	325400	203800	710000
	Desired ending inventory of Gilden as percent of following month's production needs	50%	50%	50%
	Ending inventory of Gilden (feet)	162700	101900	51950	51950
	Total Gilden required (feet)	343500	427300	255750	761950
	Less: Beginning inventory of Gilden (feet)	90400	162700	101900	90400
	Quantity of Gilden to be purchased (feet)	253100	264600	153850	671550
5	Cost of Raw Material (Gilden) Purchases
		July	August	September	3rd Quarter
	Quantity of Gilden to be purchased (feet)	253100	264600	153850	671550
	Raw material (Gilden) cost per foot $	0.60	0.60	0.60	0.60
	Cost of raw material (Gilden) purchases $	151860	158760	92310	402930
6	Expected Cash Disbursements for Raw Material (Gilden) Purchases
		July	August	September	3rd Quarter
	June purchases	48390			48390
	July purchases	75930	75930		151860
	August purchases		79380	79380	158760
	September purchases			46155	46155
	Expected cash disbursements $	124320	155310	125535	405165