Question 8.1 Sun Company manufacturers beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation: The Marketing Department has estimated sales as follows for the remainder of the year (in units): July 30,000 August 70,000 September 50,000 October 20,000 November 10,000 December 10,000 The selling price of the umbrellas is $12 each. All sales are on account. Based on past experience, sales are expected to be collected in the following pattern: 30% In the month of sale 65% In the month following sale 5% uncollectable Sales for June were $300,000 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. Each beach umbrella requires 1 meter 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 Gildwn on hand at the beginning of the quarter is 18,000 meters. Gilden costs $3.20 per meter. 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: Calculate the estimates sales, by month and in total, for the third quarter. Calculate the expected cash collections, by month and in total, for the third quarter. Calculate the estimated quantity of beach umbrellas that need to be produced in July, August, September and October.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 8.1

Sun Company manufacturers beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation:

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

July	30,000
August	70,000
September	50,000
October	20,000
November	10,000
December	10,000

The selling price of the umbrellas is $12 each.

All sales are on account. Based on past experience, sales are expected to be collected in the following pattern:

30%	In the month of sale
65%	In the month following sale
5%	uncollectable

Sales for June were $300,000

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.
Each beach umbrella requires 1 meter 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 Gildwn on hand at the beginning of the quarter is 18,000 meters.
Gilden costs $3.20 per meter. 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:

Calculate the estimates sales, by month and in total, for the third quarter.
Calculate the expected cash collections, by month and in total, for the third quarter.
Calculate the estimated quantity of beach umbrellas that need to be produced in July, August, September and October.

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