PROBLEM 8-28 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:

A.the Marketing Department has estimated sales as follows for the remainder of the year (in units):

July . . . . . . . . . . . . . . . . . . . 30,000October . . . . . . . . . . . . . . . . 20,000

August . . . . . . . . . . . . . . . . . 70,000November . . . . . . . . . . . . . . 10,000

September . . . . . . . . . . . . . . 50,000December . . . . . . . . . . . . . . 10,000

The selling price of the beach umbrellas is $12 per unit.

B. 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 $300,000.

C. The company maintains finished goods inventories equal to 15% of the following months

Sales. This requirement will be met at the end of June.

D. 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 . . . . . ...... . . 72,000feet

September 30 . . . . . . . . . ?Feet

E. 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 $76,000.

Required:

1. Prepare a sales budget, by month and in total, for the third quarter. (Show your budget in both

units and dollars.) 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-October.

3. Prepare a direct materials budget for Gilden, by month and in total, for the third quarter. Also

prepare a schedule of expected cash disbursements for Gilden, by month and in total, for the

Third quarter.