Milo Company manufactures beach umbrellas. The company is preparing detailed bud
ID: 2552701 • Letter: M
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:
The Marketing Department has estimated sales as follows for the remainder of the year (in units):
The selling price of the beach umbrellas is $10 per unit.
All sales are on account. Based on past experience, sales are collected in the following pattern:
Sales for June totaled $440,000.
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.
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:
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.
July 42,500 October 32,500 August 95,000 November 19,000 September 64,000 December 19,500Explanation / Answer
1) Sales budget july august sept quarter Estimated sale units 42,500 95,000 64,000 201,500 Selling price per unit 10 10 10 10 total sales 425000 950000 640000 2015000 2) Expected cash collection july august sept quarter From june sales (440,000*65%) 286000 286000 from july sales(425000*30%;65%) 127500 276250 403750 From aug sales (950,000*30%;65%) 285000 617500 902500 From sept sales (640,000*30%) 192000 192000 total cash collections 413500 561250 809500 1784250 3) production budget july august sept october Estimated sale units 42,500 95,000 64,000 32,500 Add: Ending inventory 14250 9600 4875 2850 total needs 56,750 104,600 68,875 35,350 less :opening inventory -6375 -14,250 -9,600 -4875 production required 50,375 90,350 59,275 30,475 4) july august sept Quarter 0ct production required 50,375 90,350 59,275 200,000 30,475 feet required per umbrella 4 4 4 4 4 production needs 201500 361400 237100 800000 121900 Add:Ending inventory 180700 118550 60950 60,950 total needs 382200 479950 298050 860950 less:Opening inventory -100750 -180,700 -118,550 -100,750 total materials purchased 281450 299250 179500 760200 5) cost of raw materials purchases july august sept Quarter total materals purchased 281450 299250 179500 760200 cost per feet $0.40 $0.40 $0.40 $0.40 Materials cost $112,580.00 $119,700.00 $71,800.00 $304,080.00 6) Cash disbursement july august sept Quarter accounts payable 37,660 37,660 From july sales (210040*1/2) $56,290.00 $56,290.00 $112,580.00 from aug sales (220920*1/2) $59,850.00 $59,850.00 119700 from sept sales (129,920*1/2) $35,900.00 35900 total cash disrbursement 93,950 116140 95750 305,840