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 30,500 October 20,500
August 71,000 November 7,000
September 40,000 December 7,500
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:

30% in the month of sale
65% in the month following sale
5% uncollectible
Sales for June totaled $200,000.

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 73,150 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 $34,890.

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.

Answer 1

The third quarter's total estimated sales for Milo Company are $1,415,000, and the expected cash collections total to $1,393,000, considering the collection pattern of sales.

Step-by-step explanation:

To calculate the estimated sales for Milo Company's beach umbrellas for the third quarter, we multiply the number of units estimated to be sold each month by the selling price per unit. For July, August, and September, the sales would be:

• July: 30,500 units × $10 = $305,000
• August: 71,000 units × $10 = $710,000
• September: 40,000 units × $10 = $400,000

The total estimated sales for the third quarter would be the sum of the monthly sales, which equals $1,415,000.

The expected cash collections for the third quarter are based on the pattern of sales collections: 30% in the month of sale, 65% in the following month, and the remaining subsequent to that (note that 5% is uncollectible). Including the June sales, the collections would be:

• July: ($200,000 × 65%) + ($305,000 × 30%) = $221,750
• August: ($305,000 × 65%) + ($710,000 × 30%) = $529,750
• September: ($710,000 × 65%) + ($400,000 × 30%) = $641,500

Total expected cash collections for the quarter are the sum of the monthly collections, which equals $1,393,000.

Answer 2

The estimated sales for the third quarter of the Milo Company's beach umbrellas can be calculated using the sales estimates and selling price. The expected cash collections for the third quarter can also be determined based on the sales collection pattern provided.

Step-by-step explanation:

To calculate the estimated sales for the third quarter, we need to use the sales estimates provided by the Marketing Department, along with the selling price of the beach umbrellas. From the given information, we can calculate the estimated sales for each month:

1. July: 30,500 units x $10/unit = $305,000
2. August: 71,000 units x $10/unit = $710,000
3. September: 40,000 units x $10/unit = $400,000
4. October: 20,500 units x $10/unit = $205,000
5. November: 7,000 units x $10/unit = $70,000
6. December: 7,500 units x $10/unit = $75,000

The total estimated sales for the third quarter would be $1,765,000.

To calculate the expected cash collections, we need to use the sales collection pattern provided. Based on past experience, 30% of sales are collected in the month of sale, 65% are collected in the month following the sale, and 5% are uncollectible. Using this information, we can calculate the expected cash collections for each month:

1. July: $305,000 x 30% = $91,500
2. August: ($305,000 x 65%) + ($710,000 x 30%) = $211,650 + $213,000 = $424,650
3. September: ($710,000 x 65%) + ($400,000 x 30%) = $461,500 + $120,000 = $581,500
4. October: ($400,000 x 65%) + ($205,000 x 30%) = $260,000 + $61,500 = $321,500
5. November: ($205,000 x 65%) + ($70,000 x 30%) = $133,250 + $21,000 = $154,250
6. December: ($70,000 x 65%) + ($75,000 x 30%) = $45,500 + $22,500 = $68,000

The total expected cash collections for the third quarter would be $1,741,350.