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:
a. The Marketing Department has estimated sales as follows for the remainder of the year (in units):
July 6,000 October 4,000
August 7,000 November 3,000
September 5,000 December 3,000
The selling price of the beach umbrellas is $17 per unit.
b. All sales are on account. Based on past experience, sales are collected in the following pattern:
43% in the month of sale
48% in the month following sale
9% uncollectible
Sales for June totaled $129,000.
c. The company maintains finished goods inventories equal to 12% of the following months sales. This requirement will be met at the end of June.
d. Each beach umbrella requires 5 feet of Gilden, a material that is sometimes hard to acquire. Therefore, the company requires that the ending inventory of Gilden be equal to 20% of the following months production needs. The inventory of Gilden on hand at the beginning and end of the quarter will be:
June 30 6,120 feet
September 30 ? feet
e. Gilden costs $3.00 per foot. 57% of a months 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 $10,500.
Requirement 1:
(a) Prepare a sales budget, by month and in total, for the third quarter.
(b) Prepare a schedule of expected cash collections, by month and in total, for the third quarter.
Requirement 2:
Prepare a production budget for each of the months July October.
Requirement 3:
(a) Prepare a direct materials budget for Gilden, by month and in total, for the third quarter.
(b) Prepare a schedule of expected cash disbursements for Gilden, by month and in total, for the third quarter.