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):

The selling price of the beach umbrellas is $12 per unit.

July		40,500		October		30,500
August		91,000		November		17,000
September		60,000		December		17,500

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 $480,000.

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	96,150	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 $52,890.

1. 1-a. Prepare a sales budget, by month and in total, for the third quarter

	July	August	September	Quarter
Budgeted Unit Sales
Selling Price per Unit
Budgeted Sales

1-b. Prepare a schedule of expected cash collections, by month and in total, for the third quarter.

Schedule of Expected Cash Collections
	July	August	September	Quarter
Accounts Receivable, June 30
July Sales
August Sales
September Sales
Total Cash Collections

Answer 1

Solution:-

1. 1-a. Prepare a sales budget, by month and in total, for the third quarter:-

	July	August	September	Quarter
Budgeted unit sales	40,500	91,000	60,000	191,500
Selling price per unit	12	12	12	12
Budgeted sales	486,000	1,092,000	720,000	2,298,000

1-b. Prepare a schedule of expected cash collections, by month and in total, for the third quarter:-

Schedule of expected cash collection
	July	August	September	Quarter
Accounts Receivable, June 30	312,000			312,000
July Sales	145,800	315,900		461,700
August Sales		327,600	709,800	1,037,400
September Sales			216,000	216,000
Total cash collections	457,800	643,500	925,800	2,027,100