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Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and...

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 37,000 October 27,000
August 84,000 November 13,500
September 53,000 December 14,000

The selling price of the beach umbrellas is $11 per unit.

  1. 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 $363,000.

  1. 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.

  2. 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 88,100 feet
September 30 ? feet
  1. 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 $62,120.

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.

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Answer #1

Solution 1:

Milo Company - Computation of Estimated Sales for 3rd Quarter
Particulars July August September Total
Sales in Units 37000 84000 53000 174000
Selling Price per unit $11.00 $11.00 $11.00 $11.00
Estimated Sales $407,000.00 $924,000.00 $583,000.00 $1,914,000.00

Solution 2:

Milo Company - Computation of Estimated Cash Collection for 3rd Quarter
Particulars July August September Total
Accounts receivables, June 30 $235,950.00 $235,950.00
July Sales $122,100.00 $264,550.00 $386,650.00
August Sales $277,200.00 $600,600.00 $877,800.00
September sales $174,900.00 $174,900.00
Total Cash collection $358,050.00 $541,750.00 $775,500.00 $1,675,300.00

Solution 3:

Milo Company - Computation of Estimated Production of Beach Umbrellas
Particulars July August September October
Sales in Units 37000 84000 53000 27000
Required ending Inventory (15% of Following month Sale) 12600 7950 4050 2025
Total Needs 49600 91950 57050 29025
Opening Inventory 5550 12600 7950 4050
Estimated Production (Sales + Ending Inventory - Opening Inventory) 44050 79350 49100 24975

solution 4:

Milo Company - Computation of quantity of Gilden to be purchased in 3rd quarter
Particulars July August September Total
Estimated Production 44050 79350 49100 172500
Required qty of Gilder per unit (In feet) 4 4 4 4
Total requirement of Gilden 176200 317400 196400 690000
Required ending Inventory (50% of Following month Production Needs) 158700 98200 49950 49950
Total units of raw materials needed 334900 415600 246350 739950
Opening Inventory of Gilden 88100 158700 98200 88100
Quantity of Gilden to be Purchased 246800 256900 148150 651850

Solution 5:

Milo Company - Computation of cost of Gilden to be purchased in 3rd quarter
Particulars July August September Total
Quantity of Gilden to be Purchased 246800 256900 148150 651850
Cost per unit $0.80 $0.80 $0.80 $0.80
Cost of Raw Material Purchase $197,440.00 $205,520.00 $118,520.00 $521,480.00

Solution 6:

Milo Company - Computation of expected cash disbursement
Particulars July August September Total
Accounts Payable, June 30 $62,120.00 $62,120.00
July Purchases $98,720.00 $98,720.00 $197,440.00
August Purchases $102,760.00 $102,760.00 $205,520.00
September Purchases $59,260.00 $59,260.00
Total Cash disbursements $160,840.00 $201,480.00 $162,020.00 $524,340.00
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