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	41,000	October	31,000
August	92,000	November	17,500
September	61,000	December	18,000

The selling price of the beach umbrellas is $13 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 $533,000.

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	97,300	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 $53,790.

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)	Sales budget
				july	august	sept	quarter
	Estimated sale units			41,000	92,000	61,000	194,000
	Selling price per unit			13	13	13	13
	total sales			533000	1196000	793000	2522000
2)	Expected cash collection
				july	august	sept	quarter
From june sales (533,000*65%)				346450			346450
from july sales(533000*30%;65%)				159900	346450		506350
From aug sales (1196,000*30%;65%)					358800	777400	1136200
From sept sales (793,000*30%)						237900	237900
total cash collections				506350	705250	1015300	2226900
3)	production budget
				july	august	sept	october
	Estimated sale units			41,000	92,000	61,000	31,000
Add: Ending inventory				13800	9150	4650	2625
total needs				54,800	101,150	65,650	33,625
less :opening inventory				-6150	-13,800	-9,150	-4650
production required				48,650	87,350	56,500	28,975
4)
				july	august	sept	Quarter		0ct
production required				48,650	87,350	56,500	192,500		28,975
feet required per umbrella				4	4	4	4		4
production needs				194600	349400	226000	770000		115900
Add:Ending inventory				174700	113000	57950	57,950
total needs				369300	462400	283950	827950
less:Opening inventory				-97300	-174,700	-113,000	-97,300
total materials purchased				272000	287700	170950	730650
5)	cost of raw materials purchases
				july	august	sept	Quarter
total materals purchased				272000	287700	170950	730650
cost per feet				$0.60	$0.60	$0.60	$0.60
Materials cost				$163,200.00	$172,620.00	$102,570.00	$438,390.00
6)	Cash disbursement
				july	august	sept	Quarter
accounts payable				53,790			53,790
From july sales				$81,600.00	$81,600.00		$163,200.00
from aug sales					$86,310.00	$86,310.00	172620
from sept sales						$51,285.00	51285
total cash disrbursement				135,390	167910	137595	440,895