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):

 





July42,500October32,500
August95,000November19,000
September64,000December19,500

 

The selling price of the beach umbrellas is $10 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 $440,000.

  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 30100,750feet
September 30?feet

 

  1. Gilden costs $0.40 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 $37,660.

 

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.


The third quarter consists of July, August, and September

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Answer #1
purchase budget
july august September total october
sale units 42,500 95,000 64,000 201,500 32,500
add ending inventory 15% 14250 9600 4875 4,875 2850
total needs 56,750 104,600 68,875 206,375 35,350
opening inventory 15% -6375 -14,250 -9,600 -6,375 -4,875
total production required 50,375 90,350 59,275 200,000 30,475
Direct materials budget
july august September total october
production required 50,375 90,350 59,275 200,000 30,475
feet per unit 4 4 4 4 4
total feet required 201500 361400 237100 800000 121900
ending inventory 50% 180700 118550 60950 60950
total needs 382200 479950 298050 860950
opening inventory 50% -100750 -180700 -118550 -100750
material required 281450 299250 179500 760200
cost per feet 0.4 0.4 0.4 0.4
total cost of material 112580 119700 71800 304080
Cash disbursements
july august September total
accounts payable 37,660 37,660
july 112580/2 56290 56,290 112580
august 119700/2 59850 59,850 119700
September 71800/2 35900 35900
total cash paid 93,950 116140 95750 305,840
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