Question

Milo Company manufactures beach umbrellas. The company is now 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	41,000	October	31,000
August	81,000	November	21,000
September	61,000	December	21,000

The selling price of the beach umbrellas is $10 per unit. Sales in June were 36,000 units.

b.	All sales are on account. On the basis of past experience, sales are collected in the following pattern:

40%	in the month of sale
55%	in the month following sale
5%	uncollectible

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 metres of Gilden, a material that is sometimes hard to get. Therefore, the company requires that the inventory of Gilden on hand at the end of each month 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 as follows:

June 30	94,000	metres
September 30	?	metres

e.	Gilden costs $0.80 per metre. One-half of a month’s purchases of Gilden are paid for in the month of purchase; the remainder are paid for in the following month. The accounts payable on July 1 for purchases of Gilden during June will be $87,000.

Required:

1.	Prepare a sales budget, by month and in total, for the third quarter. Also, prepare a schedule of expected cash collections, by month and in total, for the third quarter.

       

    

2.	Prepare a production budget for each of the months July to October.

       

3.	Prepare a materials purchases budget for Gilden, by month and in total, for the third quarter. Also, prepare a schedule of expected cash payments for Gilden, by month and in total, for the third quarter.

      

    

Answer 1

Solutions:

E F Milo Company ZN Particulars Budgeted Unit sales Selling Price per unit Budgeted Sales Sales Budget July 41000 $10.00 $410,000 August September 81000 61000 $10.00 $10.00 $810,000 $610,000 Quarter 183000 $10.00 $1,830,000 13 14 Milo Company Schedule of Expected Cash Collection for 3rd Quarter Particulars July August September Accounts receivables, June 30 $198,000 July Sales $164,000 $225,500 August Sales $324,000 $445,500 September sales $244,000 Total Cash collection $362,000 $549,500 $689,500 Quarter $198,000 $389,500 $769,500 $244,000 $1,601,000 Milo Company Production Budget | 41000 August 81000 September 61000 October 31000 Particulars Budgeted unit sales Add: Required ending Inventory (15% of Following month Sale) Total Needs Less: Opening Inventory Required Production in units 30 12150 53150 6150 47000 9150 90150 12150 78000 4650 65650 9150 56500 3150 34150 4650 29500 31 32 33 35 36 August 78000 September 56500 Quarter 181500 Milo Company Direct Materials Budget Particulars July Required Production in Units 47000 Units of Raw materials needed per unit Units of Raw materials needed to Meet production 188000 Add: Required ending Inventory (50% of Following month Production Needs) 156000 Total units of raw materials needed 344000 Less: Opening Inventory of Gilden 94000 Units of raw Materials to be purchased 250000 3120000 226000 726000 113000 425000 156000 269000 59000 285000 113000 172000 59000 785000 94000 691000 Milo Company Cost of Direct Materials purchases Budget July August Particulars September Quarter Units of raw Materials to be purchased Unit cost of raw materials Cost of Raw Material to be purchased 250000 $0.80 $200,000 269000 $0.80 $215,200 172000 $0.80 $137,600 691000 $0.80 $552,800 September Milo Company Schedule of expected cash disbursements July August $87,000 $100,000 $100,000 $107,600 Particulars Accounts Payable, June 30 July Purchases August Purchases September Purchases Total Cash disbursements 55 56 Quarter $87,000 $200,000 $215,200 $68,800 $571,000 $107,600 $68,800 $176,400 $187,000 $207,600 58 59 et642 Sheet119 (8) ) Sheet644 ) Sheet645 Sheet152 (11)