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):
July 35,000 October 25,000
August 80,000 November 11,500
September 49,000 December 12,000
The selling price of the beach umbrellas is $13 per unit.
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 $377,000.
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:
June 30 83,500 feet
September 30 ? feet
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 $42,990.
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

Let's go through each requirement step by step:

1. Calculate the estimated sales, by month and in total, for the third quarter.

Given sales information:

July: 35,000 units

August: 80,000 units

September: 49,000 units

Total: 164,000 units

Selling price per unit: $13

Estimated Sales:

July: 35,000 * $13 = $455,000

August: 80,000 * $13 = $1,040,000

September: 49,000 * $13 = $637,000

Total for the third quarter: $455,000 + $1,040,000 + $637,000 = $2,132,000

2. Calculate the expected cash collections, by month and in total, for the third quarter.

Based on the sales collection pattern:

30% in the month of sale

65% in the month following sale

5% uncollectible

Cash Collections:

July (30% of July sales): $455,000 * 0.3 = $136,500

August (65% of July sales): $455,000 * 0.65 = $295,750

September (65% of August sales): $1,040,000 * 0.65 = $676,000

October (30% of October sales): $637,000 * 0.3 = $191,100

November (65% of October sales): $637,000 * 0.65 = $414,050

December (65% of November sales): $637,000 * 0.65 = $414,050

Total cash collections for the third quarter: $136,500 + $295,750 + $676,000 + $191,100 + $414,050 + $414,050 = $2,127,450

3. Calculate the estimated quantity of beach umbrellas that need to be produced in July, August, September, and October.

Finished goods inventory requirement: 15% of the following month’s sales.

Production Needs:

July: 80,000 * 1.15 = 92,000 units

August: 49,000 * 1.15 = 56,350 units

September: 25,000 * 1.15 = 28,750 units

October: 11,500 * 1.15 = 13,225 units

4. Calculate the quantity of Gilden (in feet) that needs to be purchased by month and in total, for the third quarter.

Ending inventory requirement: 50% of the following month’s production needs.

Gilden Purchases:

July: (92,000 * 4) * 0.5 = 184,000 feet

August: (56,350 * 4) * 0.5 = 113,400 feet

September: (28,750 * 4) * 0.5 = 57,500 feet

October: (13,225 * 4) * 0.5 = 26,450 feet

5. Calculate the cost of the raw material (Gilden) purchases by month and in total, for the third quarter.

Cost per foot of Gilden: $0.60

Cost of Gilden Purchases:

July: $0.60 * 184,000 = $110,400

August: $0.60 * 113,400 = $68,040

September: $0.60 * 57,500 = $34,500

October: $0.60 * 26,450 = $15,870

Total cost of Gilden purchases for the third quarter: $110,400 + $68,040 + $34,500 + $15,870 = $229,810

6. Calculate the expected cash disbursements for raw material (Gilden) purchases, by month and in total, for the third quarter.

Half of a month’s purchases are paid in the month of purchase; the remainder is paid for in the following month.

Cash Disbursements for Gilden Purchases:

July: $110,400 * 0.5 = $55,200

August: $68,040 * 0.5 = $34,020

September: $34,500 * 0.5 = $17,250

October: $15,870 * 0.5 = $7,935

Total cash disbursements for Gilden purchases for the third quarter: $55,200 + $34,020 + $17,250 + $7,935 = $114,405

These calculations provide an overview of the estimated sales, cash collections, production needs, Gilden purchases, and associated costs for the third quarter.

Answer 2

Here are the calculations for Milo Company's third-quarter budgets:

1. Estimated Sales

Month Estimated Sales (Units) Total Sales ($000s)

July 35,000 $455

August 80,000 $1,040

September 49,000 $637

Total 164,000 $2,132

2. Expected Cash Collections

Month Cash Collections from Current Sales ($000s) Cash Collections from Prior Sales ($000s) Total Cash Collections ($000s)

July $136.50 (30% of July sales) $247.55 (65% of June sales) $384.05

August $182.00 (30% of August sales) $280.50 (65% of July sales) $462.50

September $147.00 (30% of September sales) $328.85 (65% of August sales) $475.85

Total $465.50 $856.90 $1,322.40

3. Estimated Production Requirements

Month Estimated Sales (Units) Finished Goods Inventory (Units) Required Production (Units)

July 35,000 5,250 (15% of August sales) 39,750

August 80,000 12,000 (15% of September sales) 88,000

September 49,000 7,350 (15% of October sales) 56,350

October 25,000 3,750 (15% of November sales) 28,750

Total 189,000 28,350 217,350

4. Gilden Purchases

Month Production (Units) Gilden Required per Unit (Feet) Total Gilden Required (Feet)

July 39,750 4 159,000

August 88,000 4 352,000

September 56,350 4 225,400

Total 184,100 736,400

5. Cost of Raw Material Purchases

Month Gilden Required (Feet) Cost per Foot ($0.60) Total Cost ($000s)

July 159,000 $0.60 $95.40

August 352,000 $0.60 $211.20

September 225,400 $0.60 $135.24

Total 736,400 $441.84

6. Expected Cash Disbursements for Raw Material Purchases

Month Payments for Current Purchases ($000s) Payments for Prior Purchases ($000s) Total Cash Disbursements ($000s)

July $95.40 (50% of July purchases) $42.99 (50% of June purchases) $138.39

August $211.20 (50% of August purchases) $95.40 (50% of July purchases) $306.60

September $135.24 (50% of September purchases) $211.