Milo Company manufactures beach umbrellas. The company is now 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		40,000		October		30,000
August		80,000		November		20,000
September		60,000		December		20,000

The selling price of the beach umbrellas is $12 per unit. Sales in June were 35,000 units.

2. All sales are on account. On the basis of past experience, sales are collected in the following pattern:

30	%	in the month of sale
65	%	in the month following sale
5	%	uncollectible

3. The company maintains finished goods inventories equal to 15% of the following months sales. This requirement will be met at the end of June.
4. Each beach umbrella requires 4 metres of Gilden, a material that is sometimes hard to get. Therefore, the company requires that the inventory of Gilden on hand at the end of each month be equal to 50% of the following months production needs. The inventory of Gilden on hand at the beginning and end of the quarter will be as follows:

June 30	92,000	metres
September 30	?	metres

5. Gilden costs $0.80 per metre. One-half of a months purchases of Gilden are paid for in the month of purchase; the remainder are paid for in the following month. The accounts payable on July 1 for purchases of Gilden during June will be $86,000.

Required: 1. Prepare a sales budget, by month and in total, for the third quarter. Also, prepare a schedule of expected cash collections, by month and in total, for the third quarter.

2. Prepare a production budget for each of the months July to October.

3. Prepare a materials purchases budget for Gilden, by month and in total, for the third quarter. Also, prepare a schedule of expected cash payments for Gilden, by month and in total, for the third quarter.

MILO COMPANY Sales Budget July August $ 480,000 $ 960,000 September Quarter $ 720,000 $2,160,000 Budgeted sales MILO COMPANY Schedule of Expected Cash Collections July August September Quarter Accounts receivable, June 30 $ 273,000 $ 273,000 July sales 144,000 312,000 456,000 August sales 288,000 624,000 912,000 September sales 216,000 216,000 Total cash collections $ 417,000 $ 600,000 $ 840,000 $1,857,000 MILO COMPANY October Production Budget for July-October July August 40,000 80,000 12,000 9,000 52,000 89,000 6,000 12,000 46,000 77,000 September 60,000 4,500 64,500 Total needs 9,000 55,500 MILO COMPANY Materials Budget Month Quarter September 60,000 4,500 180,000 July 40,000 12,000 52,000 6,000 46,000 August 80,000 9,000 89,000 12,000 77,000 4,500 184,500 Total needs (metres) 64,500 600 9,000 55,500 178,500 MILO COMPANY Quarter Schedule of Expected Cash Payments July August September Accounts payable, June 30 July purchases August purchases September purchases Total cash payments $ 0 $ 0 $ 0 $ 0

Answer rating: 100% (QA)

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