Question

Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets

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):

July	33,500	October	23,500
August	77,000	November	10,000
September	46,000	December	10,500

The selling price of the beach umbrellas is $10 per unit.

2. 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 $260,000.

3. 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.
4. 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	80,050	feet
September 30	?	feet

5. Gilden costs $0.80 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 $53,720.

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

Solution 1:

Milo Company - Computation of Estimated Sales for 3rd Quarter
Particulars	July	August	September	Total
Sales in Units	33500	77000	46000	156500
Selling Price per unit	$10.00	$10.00	$10.00	$10.00
Estimated Sales	$335,000.00	$770,000.00	$460,000.00	$1,565,000.00

Solution 2:

Milo Company - Computation of Estimated Cash Collection for 3rd Quarter
Particulars	July	August	September	Total
Accounts receivables, June 30	$169,000.00			$169,000.00
July Sales	$100,500.00	$217,750.00		$318,250.00
August Sales		$231,000.00	$500,500.00	$731,500.00
September sales			$138,000.00	$138,000.00
Total Cash collection	$269,500.00	$448,750.00	$638,500.00	$1,356,750.00

Solution 3:

Milo Company - Computation of Estimated Production of Beach Umbrellas
Particulars	July	August	September	October
Sales in Units	33500	77000	46000	23500
Required ending Inventory (15% of Following month Sale)	11550	6900	3525	1500
Total Needs	45050	83900	49525	25000
Opening Inventory	5025	11550	6900	3525
Estimated Production (Sales + Ending Inventory - Opening Inventory)	40025	72350	42625	21475

Solution 4:

Milo Company - Computation of quantity of Gilden to be purchased in 3rd quarter
Particulars	July	August	September	Total
Estimated Production	40025	72350	42625	155000
Required qty of Gilder per unit (In meters)	4	4	4	4
Total requirement of Gilden	160100	289400	170500	620000
Required ending Inventory (50% of Following month Production Needs)	144700	85250	42950	42950
Total units of raw materials needed	304800	374650	213450	662950
Opening Inventory of Gilden	80050	144700	85250	80050
Quantity of Gilden to be Purchased	224750	229950	128200	582900

Solution 5:

Milo Company - Computation of cost of Gilden to be purchased in 3rd quarter
Particulars	July	August	September	Total
Quantity of Gilden to be Purchased	224750	229950	128200	582900
Cost per unit	$0.80	$0.80	$0.80	$0.80
Cost of Raw Material Purchase	$179,800.00	$183,960.00	$102,560.00	$466,320.00

Solution 6:

Milo Company - Computation of expected cash disbursement
Particulars	July	August	September	Total
Accounts Payable, June 30	$53,720.00			$53,720.00
July Purchases	$89,900.00	$89,900.00		$179,800.00
August Purchases		$91,980.00	$91,980.00	$183,960.00
September Purchases			$51,280.00	$51,280.00
Total Cash disbursements	$143,620.00	$181,880.00	$143,260.00	$468,760.00