Question

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

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.

 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

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