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:

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

July	30,000	October	20,000
August	70,000	November	10,000
September	50,000	December	10,000

The selling price of the beach umbrellas is $12 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 $300,000.

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:

July 30	72,000 ft
September 30	?

e. 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 $76,000.

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.

Please show steps! :)

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)	30,000	70,000	50,000	150,000
*Price per unit (b)	$12	$12	$12	$12
Total Sales	$360,000	$840,000	$600,000	1,800,000
2. Cash Collections
Milo Company
Schedule of expected Cash collections
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
June sales (300,000*.65)	195,000			195,000
July Sales	108,000	234,000		342,000
August sales		252,000	546,000	798,000
September sales			180,000	180,000
Total collections	303,000	486,000	726,000	1,515,000
3. Production Budget
Milo Company
Production Budget
For the quarter ended September 30
	Month
Particulars	July	August	September	Total	October
Sale Units (a)	30,000	70,000	50,000	150,000	22,500
Planned ending units (b)	10,500	7,500	3,375	3,375	1350
Beginning units (c )	4,500	10,500	7,500	4,500	3,375
Planned production units (d)= (a+b-c)	36,000	67,000	45,875	148,875	20,475
4. and 5. Raw material Budget
Milo Company
Raw Material Purchase Budget
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
Planned production units (a)	36,000	67,000	45,875	148,875	20475
*Direct Material (Gilden) required per unit (b)	4.0	4.0	4.0	4.0	4.0
Direct Material Required for production (c )	144,000	268,000	183,500	595,500	81,900
Budgeted ending Direct Material (d)	134,000	91,750	40,950	40,950
Beginning Direct Material (e )	72,000	134,000	91,750	72,000
Budgeted direct material purchase f= c+d-e	206,000	225,750	132,700	564,450
Cost per unit (g)	$0.80	$0.80	$0.80	$0.80
BudgetedDM purchases	$164,800	$180,600	$106,160	$451,560
Milo Company
Schedule of expected Cash payments
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
Beginning Accounts Payable	$76,000			$76,000
July purchases	$82,400	$82,400		$164,800
August Purchases		$90,300	$90,300	$180,600
September purchases			$53,080	$53,080
Total payments (a+b+c+d)	$158,400	$172,700	$143,380	$474,480

Working:

3. Production Budget
July Ending Inventory	70,000*.15
August Ending Inventory	50,000*.15
September Ending Inventory	22,500*.15
July Beginning Inventory	30,000*.15
August beginning Inventory	70,000*.15
September beginning Inventory	50,000*.15
4. and 5. Raw material Budget
July Ending Inventory	268,000*.5
August Ending Inventory	183,500*.5
September Ending Inventory	595,500*.5
July Beginning Inventory	144,000*.5
August beginning Inventory	268,000*.5
September beginning Inventory	183,500*.5