Chapter 8 Case Accounting 2020

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):
 
       
30,00
July October 20,000
0
70,00
August November10,000
0
50,00
September December10,000
0

 
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 month’s
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 72,00 feet
0
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. Calculate the estimated sales, by month and in total, for the third quarter.
2. Calculate the estimated quantity of beach umbrellas that need to be produced in July, August,
September, and October.
3. Calculate the quantity of Gilden (in feet) that needs to be purchased by month and in total, for the
third quarter.
4. Calculate the cost of the raw material (Gilden) purchases by month and in total, for the third
quarter.
Chapter 8 Case Accounting 2020

You have been asked to prepare a December cash budget for Ashton Company, a distributor of
exercise equipment. The following information is available about the company’s operations:
 
a. The cash balance on December 1 is $41,200.
b. Actual sales for October and November and expected sales for December are as follows:
 
  October November December
Cash sales $ 75,400 $ 82,400 $ 97,200
Sales on account $490,000 $544,000 $ 629,000

 
Sales on account are collected over a three-month period as follows: 20% collected in the month of
sale, 60% collected in the month following sale, and 18% collected in the second month following
sale. The remaining 2% is uncollectible.
c. Purchases of inventory will total $366,000 for December. Thirty percent of a month’s
inventory purchases are paid during the month of purchase. The accounts payable
remaining from November’s inventory purchases total $183,000, all of which will be paid in
December.
d. Selling and administrative expenses are budgeted at $472,000 for December. Of this
amount, $60,000 is for depreciation.
e. A new web server for the Marketing Department costing $96,000 will be purchased for cash
during December, and dividends totaling $11,500 will be paid during the month.
f. The company maintains a minimum cash balance of $20,000. An open line of credit is
available from the company’s bank to increase its cash balance as needed.
 
Required:
1. Calculate the expected cash collections for December.
2. Calculate the expected cash disbursements for merchandise purchases for December.
3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be
needed during the month. Assume that any interest will not be paid until the following month.