The company sells many styles of earrings, but all are sold for the same price-$10 per pair. Actual sales of earrings for the last 3 months and budgeted sales for the next 6 months follow. (in pairs of earrings)

January (actual)……………..20,000

February (actual)……………26,000

March (actual)………………40,000

April (budget)………………65,000

May (budget)……………….100,000

June (budget)……………….50,000

July (budget)……………….30,000

August (budget)……………28,000

September (budget)…………25,000

Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month. Suppliers are paid $4 for a pair of earrings. One half of months purchases are paid for in the month of purchases; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of the months sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible. Monthly operating expenses for the company are given below:

Variable:

Sales commission…………4% of sales

Fixed:

Advertising………………..$200,00

Rent……………………….$18,000

Salaries……………………$106,000

Utilities……………………$7,000

Insurance………………….$3,000

Depreciation………………$14,000

Insurance is paid on an annual basis, in November of each year. The company plans to purchases $16,000 in new equipment during May and $40,000 in new equipment during June: both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter. A listing of the company's ledger accounts as of March 31st is given below:

Assets

Cash…………………………………………………………………………….. $74,000

Accounts receivable ($26,000 February sales; $320,000 March Sales)…………346,000

Inventory………………………………………………………………………..104,000

Prepaid Insurance……………………………………………………………….21,000

Property and equipment (net)……………………………………………………950,000

Total Assets……………………………………………………………………..$1,495,000

Liabilities and stockholder equity

Accounts payable……………………………$100,000

Dividends payable…………………………..$15,000

Common stock………………………………800,000

Retained Earnings……………………………580,000

Total liabilities and stockholders' equity……$1,495,000

The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of the month; any repayments are made at the end of the month.

The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is !% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000). While still retaining at least $50,000 in cash

Requirements:

Prepare a master budget for the three-month period ending June 30th. Include the following detailed budgets:

1 a. A sales budget, by month and in total

b. A schedule of expected cash collections from sales, by month and in total

c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

d. A schedule of expected cash disbursement for merchandise purchases, by month and in total

2) A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.

3) A budget income statement for the 3 month period ending June 30th. Use the contribution approach.

4) A budgeted balance sheet as of June 30th.