47 7 A fx 331000 B D E F ? B Add: Finance from bank 170,000.00 10,000.00 ? ? 9 Less: Payment to bank 0 Less: Payment of interest - bank loan (5,300.00) ? 01 Net Closing Cash Balance $ 50,000.00 ? ? $ 50,000.00 02 033) Budgeted Income Statement 04 For the Quarter Ending June 30 05 06 Sales ? 07 Less: Variable Cost 08 Cost of Goods Sold ? 09 Sales Comm. - 4% of Sales ? ? 10 Contribution ? 11 Less: Fixed Cost 12 Advertising 113 114 Rent Salary Expense 115 Utilities 116 Insurance 117 118 119 120 Depreciation Operating Profit Less: Interest Expense Net Income ? ?? ? ? ? ? ? ? $ 154,700.00 121 122 123 124 Master Budget 47 7 A fx 331000 B D E F ? B Add: Finance from bank 170,000.00 10,000.00 ? ? 9 Less: Payment to bank 0 Less: Payment of interest - bank loan (5,300.00) ? 01 Net Closing Cash Balance $ 50,000.00 ? ? $ 50,000.00 02 033) Budgeted Income Statement 04 For the Quarter Ending June 30 05 06 Sales ? 07 Less: Variable Cost 08 Cost of Goods Sold ? 09 Sales Comm. - 4% of Sales ? ? 10 Contribution ? 11 Less: Fixed Cost 12 Advertising 113 114 Rent Salary Expense 115 Utilities 116 Insurance 117 118 119 120 Depreciation Operating Profit Less: Interest Expense Net Income ? ?? ? ? ? ? ? ? $ 154,700.00 121 122 123 124 Master Budget 47 7 A fx 331000 B D E F ? B Add: Finance from bank 170,000.00 10,000.00 ? ? 9 Less: Payment to bank 0 Less: Payment of interest - bank loan (5,300.00) ? 01 Net Closing Cash Balance $ 50,000.00 ? ? $ 50,000.00 02 033) Budgeted Income Statement 04 For the Quarter Ending June 30 05 06 Sales ? 07 Less: Variable Cost 08 Cost of Goods Sold ? 09 Sales Comm. - 4% of Sales ? ? 10 Contribution ? 11 Less: Fixed Cost 12 Advertising 113 114 Rent Salary Expense 115 Utilities 116 Insurance 117 118 119 120 Depreciation Operating Profit Less: Interest Expense Net Income ? ?? ? ? ? ? ? ? $ 154,700.00 121 122 123 124 Master Budget 47 7 A fx 331000 B D E F ? B Add: Finance from bank 170,000.00 10,000.00 ? ? 9 Less: Payment to bank 0 Less: Payment of interest - bank loan (5,300.00) ? 01 Net Closing Cash Balance $ 50,000.00 ? ? $ 50,000.00 02 033) Budgeted Income Statement 04 For the Quarter Ending June 30 05 06 Sales ? 07 Less: Variable Cost 08 Cost of Goods Sold ? 09 Sales Comm. - 4% of Sales ? ? 10 Contribution ? 11 Less: Fixed Cost 12 Advertising 113 114 Rent Salary Expense 115 Utilities 116 Insurance 117 118 119 120 Depreciation Operating Profit Less: Interest Expense Net Income ? ?? ? ? ? ? ? ? $ 154,700.00 121 122 123 124 Master Budget 47 7 A fx 331000 B D E F ? B Add: Finance from bank 170,000.00 10,000.00 ? ? 9 Less: Payment to bank 0 Less: Payment of interest - bank loan (5,300.00) ? 01 Net Closing Cash Balance $ 50,000.00 ? ? $ 50,000.00 02 033) Budgeted Income Statement 04 For the Quarter Ending June 30 05 06 Sales ? 07 Less: Variable Cost 08 Cost of Goods Sold ? 09 Sales Comm. - 4% of Sales ? ? 10 Contribution ? 11 Less: Fixed Cost 12 Advertising 113 114 Rent Salary Expense 115 Utilities 116 Insurance 117 118 119 120 Depreciation Operating Profit Less: Interest Expense Net Income ? ?? ? ? ? ? ? ? $ 154,700.00 121 122 123 124 Master Budget 47 7 A fx 331000 B D E F ? B Add: Finance from bank 170,000.00 10,000.00 ? ? 9 Less: Payment to bank 0 Less: Payment of interest - bank loan (5,300.00) ? 01 Net Closing Cash Balance $ 50,000.00 ? ? $ 50,000.00 02 033) Budgeted Income Statement 04 For the Quarter Ending June 30 05 06 Sales ? 07 Less: Variable Cost 08 Cost of Goods Sold ? 09 Sales Comm. - 4% of Sales ? ? 10 Contribution ? 11 Less: Fixed Cost 12 Advertising 113 114 Rent Salary Expense 115 Utilities 116 Insurance 117 118 119 120 Depreciation Operating Profit Less: Interest Expense Net Income ? ?? ? ? ? ? ? ? $ 154,700.00 121 122 123 124 Master Budget 47 7 A fx 331000 B D E F ? B Add: Finance from bank 170,000.00 10,000.00 ? ? 9 Less: Payment to bank 0 Less: Payment of interest - bank loan (5,300.00) ? 01 Net Closing Cash Balance $ 50,000.00 ? ? $ 50,000.00 02 033) Budgeted Income Statement 04 For the Quarter Ending June 30 05 06 Sales ? 07 Less: Variable Cost 08 Cost of Goods Sold ? 09 Sales Comm. - 4% of Sales ? ? 10 Contribution ? 11 Less: Fixed Cost 12 Advertising 113 114 Rent Salary Expense 115 Utilities 116 Insurance 117 118 119 120 Depreciation Operating Profit Less: Interest Expense Net Income ? ?? ? ? ? ? ? ? $ 154,700.00 121 122 123 124 Master Budget 47 7 A fx 331000 B D E F ? B Add: Finance from bank 170,000.00 10,000.00 ? ? 9 Less: Payment to bank 0 Less: Payment of interest - bank loan (5,300.00) ? 01 Net Closing Cash Balance $ 50,000.00 ? ? $ 50,000.00 02 033) Budgeted Income Statement 04 For the Quarter Ending June 30 05 06 Sales ? 07 Less: Variable Cost 08 Cost of Goods Sold ? 09 Sales Comm. - 4% of Sales ? ? 10 Contribution ? 11 Less: Fixed Cost 12 Advertising 113 114 Rent Salary Expense 115 Utilities 116 Insurance 117 118 119 120 Depreciation Operating Profit Less: Interest Expense Net Income ? ?? ? ? ? ? ? ? $ 154,700.00 121 122 123 124 Master Budget 47 7 A fx 331000 B D E F ? B Add: Finance from bank 170,000.00 10,000.00 ? ? 9 Less: Payment to bank 0 Less: Payment of interest - bank loan (5,300.00) ? 01 Net Closing Cash Balance $ 50,000.00 ? ? $ 50,000.00 02 033) Budgeted Income Statement 04 For the Quarter Ending June 30 05 06 Sales ? 07 Less: Variable Cost 08 Cost of Goods Sold ? 09 Sales Comm. - 4% of Sales ? ? 10 Contribution ? 11 Less: Fixed Cost 12 Advertising 113 114 Rent Salary Expense 115 Utilities 116 Insurance 117 118 119 120 Depreciation Operating Profit Less: Interest Expense Net Income ? ?? ? ? ? ? ? ? $ 154,700.00 121 122 123 124 Master Budget ACCT461 - Competency Check Case Studies Week Five Page 403 CASE 8-33 Master Budget with Supporting Schedules LO8-2, LOB-4, LOB-8, LO8-9, LOB-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-$10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six 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 The concentration of sales before and during May is due to Mother's Day: Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month. purchase; the other half is paid for in Suppliers are paid $4 for a pair of earrings. One-half of a month's purchases is paid for in the month 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 Variable: Page 404 " Sales commissions 4% of sales Fixed: Advertising $200,000 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 purchase $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. The company's balance sheet as of March 31 is given below Assets Cash Accounts receivable ($26,000 February sales; $320,000 March sales) Inventory Prepaid insurance Property and equipment (net) Total assets $ 74,000 346,000 104,000 21,000 950,000 $1,495,000 Liabilities and Stockholders' Equity Accounts payable $ 100,000 Dividends payable Common stock Retained earnings Total liabilities and stockholder's equity 15,000 800,000 580,000 $1,495,000 The company maintains a minimum cash balance of $50,000. 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 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 $50,000 in cash Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules: 1. a. A sales budget, by month and in total. b. A schedule of expected cash collections, 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 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 $50,000. 3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach