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): July August September 40,500 91,000 60,000 October November December 30,500 17,000 17,500 The selling price of the beach umbrellas is $12 per unit. 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 September 30 96,150 feet 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. 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.

Answer 1

Solutions:

Particulars Budgeted Unit sales Selling Price per unit Budgeted Sales Milo Company Sales Budget July 40500 $12.00 $486,000 August 91000 $12.00 $1,092,000 September 60000 $12.00 $720,000 Quarter 191500 $12.00 $2,298,000 September Milo Company Schedule of Expected Cash Collection for 3rd Quarter Particulars July August Accounts receivables, June 30 $312,000 July Sales $145,800 $315,900 August Sales $327,600 September sales Total Cash collection $457,800 $ 643,500 Quarter $312,000 $461,700 $1,037,400 $216,000 $2,027, 100 $709,800 $216,000 $925,800 Milo Company Production Budget July 40500 August 91000 September 60000 October 30500 Particulars Budgeted unit sales Add: Required ending Inventory (15% of Following month Sale) Total Needs Less: Opening Inventory Required Production in units 2550 33050 13650 54150 6075 48075 9000 100000 13650 86350 4575 64575 9000 55575 4575 28475 Milo Company Direct Materials Budget July 48075 August 86350 September 55575 Quarter 1900001 192300 345400 222300 760000 Particulars Required Production in Units Units of Raw materials needed per unit Units of Raw materials needed to Meet production Add: Required ending Inventory (50% of Following month Production Needs) Total units of raw materials needed Less: Opening Inventory of Gilden Units of raw Materials to be purchased 172700 365000 96150 268850 111150 456550 172700 283850 56950 279250 111150 168100 56950 816950 96150 720800 46 Milo Company Cost of Direct Materials purchases Budget Particulars July August Units of raw Materials to be purchased 268850 283850 Unit cost of raw materials $0.60 $0.60 Cost of Raw Material to be purchased $161,310 $170,310 September 168100 $0.60 $100,860 Quarter 7 20800 $0.60 $432,480 Milo Company Schedule of expected cash disbursements July August $52,890 $80,655 $80,655 $85, 155 Particulars Accounts Payable, June 30 July Purchases August Purchases September Purchases Total Cash disbursements September Quarter $52,890 $161,310 $170,310 $50,430 $434,940 $ 85,155 $50,430 $135,585 $133,545 $165,810 57 58 59 60 et642 Sheet119 (8) ) Sheet644 Sheet645 Sheet152 (11)