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	35,500	October	25,500
August	81,000	November	12,000
September	50,000	December	12,500

The selling price of the beach umbrellas is $14 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 $420,000.

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	84,650	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 $43,890.

Required:

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

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

Answer e Requirement 3) Particulars 5 Sales 5 Desired Ending inventory Production Budget July August 35500 81000 12150 7500 (81000*15%) (50000*15%) 47650 88500 5325 12150 (35500*15%) 42325 76350 September 50000 3825 (25500*15%) 53825 7500 October 25500 1800 (12000*15%) 27300 B Total Requirement Less Beginning inventory 3825 1 Production 46325 23475 3 Requirement 4) 5 Particulars 6 Required For Production Total 660000 8 Desired Ending inventory Purchase Budget for Gilden (feet) July August September 169300 305400 185300 (42325*4) (76350*4) *46325*4) 152700 92650 (305400*50%) (185300*50%) (23475*4*50%) 322000 398050 232250 84650 152700 92650 237350 245350 139600 46950 46950 706950 0 Total Requirement 1 Less Beginning raw material 2 Raw Material Purchases 84650 622300

Part 5) Particulars Raw Material Purchases Cost Per feet Cost of Raw Material Purchases Cost of Raw Material Purchases July August September Total 237350 245350 139600 0.6 0.6 0.6 142410 1472101 83760 622300 0.6 373380 Part 6) Cash Disbursement for raw material Purchases July | August September 43890 Total Particulars raccount Davable For Account Payable 43890 For July Purchases 142410 71205 (142410*50%) 71205 (142410*50%) 73605 (147210*50%) For August Purchases 147210 For September Purchases 73605 (147210*50%) 41880 (83760*50%) 115485 41880 Total 115095 144810 375390