Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has
Question:
Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has gathered the following information to assist in budget preparation:
- The Marketing Department has estimated sales (in units) as follows for the remainder of the year:
July……………………………… 30,000 October………………………… 20,000
August…………………………... 70,000 November………………………… 10,000
September……………………. 50,000 December………………………… 10,000
· The sales budgets for the third quarter of the year are reported below.
Julio | August | September | Third quarter | |
sales in units | 30,000 | 70.000 | 50,000 | 150.000 |
Price by unit | 12 | 12 | 12 | 12 |
sales in dollars | $360,000 | $840,000 | $600,000 | $1,800,000 |
- All sales are on account. Milo offers a 3 percent discount when customers make credit sales payments in the month of sale. Based on past experience, sales are collected in the following pattern:
30% in the month of sale
65% in the month following the sale
5% uncollectible
· June sales totaled $300,000. Uncollectible credit sales will be paid off in the second month following the month of sale. For example, bad balances from July credit sales will be written off in September.
· The company maintains inventories of finished products equivalent to 15% of the following month's sales. This requirement will be met by the end of June.
· Each beach umbrella requires 4 feet of Gilden, a material that is sometimes difficult to acquire. Therefore, the company requires that Gilden's ending inventory equal 50% of the following month's production needs. Gilden's inventory on hand at the beginning and end of the quarter will be:
June 30……………………………………………… 72,000 feet
September…………………………………………… ? feet
- Gilden costs $0.80 per foot. Forty percent of a month's purchases from Gilden are paid for in the month of purchase; the rest is paid in the following month. The accounts payable balance on July 1 will be $76,000. This amount represents the unpaid balance of Gilden's purchases during June that would be paid in full in July.
Required:
- (6 points) Prepare a schedule of expected cash collections for each month (July to September) and in total for the third quarter.
- (2 points) Determine the balance of accounts receivable as of September 30.
- (6 points) Prepare a production budget for each month (July to September) and in total for the third quarter.
- (6 points) Prepare a direct materials purchase budget for Gilden for each month (July to September) and in total for the third quarter. Show purchase budgets in feet and in dollars.
- (5 points) Prepare a schedule of expected cash disbursements to Gilden for each month (July through September) and in total for the third quarter.
Managerial Accounting
ISBN: 978-1259307416
16th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer