1 Building Your Skills Case (LO8-2, L08-4, LO8-8, LO8-9, LO8-10) You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located In shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below The company sells many styles of earrings, but all are sold for the same price-516 per pall. Actual sales of earrings for the last three months and budgeted sales for the next six months follow in pairs of earringsk Samany (actual) February (actual) March (actual) April (budet Hay (budget) 23,400 June (budet) 29.400 Duly (budget) 43,400 August (butt 68.100 September budget 103,466 5), 13.400 31,400 23,400 The concentration of sales before and during May is due to Mother's Day. Sufficient riventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month Suppliers are paid $5.70 for a pair of eatings One half of a month's purchases is paid for in the month of purchase, the other half is paid for in the following month. All sales are on credit Only 20% of a month's 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: Varble Monthly operating expenses for the company are given below. 4% of sales Variable: Sales comissions Fixed Advertising Rent Salaries utilities Insurance Depreciation BOOK $ 370, $ 35,000 $ 140,000 5 15, Sen $ 4,700 $31.000 Insurance is paid on an annual basis in November of each year, The company plans to purchase $24 500 in new equipment during May and $57,000 in new equipment during June, both purchases will be for cash. The company declares dividends of $27750 each quarter, payable in the first month of the following quartet. The company's balance sheet as of March 31 is given below 93,990 Assets Cash Accounts receivable ($47.040 February sales; $555.520 March sales) Inventory Pred Insurance Property and let (net) Total acts Lities and Stockholders' tuity Accounts payable Dividends payable Canto Retained in 602,560 155.952 29,500 1120,00 $3.990,013 $ 117.000 1.140.00 Assets $ 91,000 Accounts receivable ($47,90 February sales: $555,520 March sales) Inventory Prepaid Insurance Property and equipment (et) Total assets Liabilities and Stockholders' Equity Accounts payable Dividends payable Common stock Retained earnings Total abilities and stockholders equity 602,560 155.952 29,500 3.120,000 $ 1.999,012 117.000 27.750 1.140,000 214262 The company maintains a minimum cash balance of $67.000. All borrowing is done at the beginning of a month any repayments are made at the end of a 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 16 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 $67.000 in cash, Required: Prepare a master budget for the three month period ending June 30. Include the following detailed schedules a. A sales budget, by month and in total b. A schedule of expected cash collections by month and in total. c. Amerchandise purchases budget in units and in dollars. Show the budget by month and in total d Aschedule of expected cash disbursements 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 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 1% 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 $67,000 in cash Required: Prepare a master budget for the three-month perlod ending June 30. Include the following detailed schedules 1 a. A soles budget, by month and in total b. A schedule of expected cash collections, by month and in total A merchandise purchases budget in units and in dollars. Show the budget by month and in total d. A schedule of expected cash disbursements 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 $67,000 2. A budgeted Income statement for the three month period ending June 30. Use the contribution approach 4. A budgeted balance sheet as of Dane 30 Y Complete this question by entering your answers in the tabs below. Ring ta Regin Reg 1 10 Reg2 Rega PQ 4. Prepare a master budget for the three month period ending June 30 that includes a cash budget show the budget by month and in total, Determinan borrowing that would be needed to maintain the minimum cash balance of $67.000, deficiency, repayments and interest should be indicated by a min) Earrings Unlimited Cash Budget For the Three Months Ending June 30 June Quarter $ 91.000 3356 800 3,447 800 1 438.400 1 438.400 0 erences 0 0 0 Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May Beginning cash balance $ 91.000 Add collections from customers 752 000 1.100.000 Total cash available 843.000 1,166.400 Less cash disbursemonts Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid Total cash disbursements 0 0 Excess (deficiency of cash available over disbursements 343.000 1.166.400 Financing Borrowings Repayments Interest Total Financing 0 Ending cash balance 3. 343.000 $ 1.166.400 0 0 0 0 0 0 1438 400 3.447 800 0 0 D 0 $3.447 800 $ 1,438,400 1 R Prepare a master budget for the three month period ending June 30 that includes a budgeted income statement for the three month period ending June 30. Use the contribution approach Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 BO Variable expenses Print Ference 0 0 Fixed experies 0 0 0 made a budget balance sheet as of June JO. nts Earrings Unlimited Budgeted Balance Sheet June 30 Assets alloon Print Totus S Liabilities and Stockholders' Equity Totes and stockholders Reg 3