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67,600 You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping

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67,600 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-$17 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) 22,600 June (budget) 52,600 February (actual) 28,600 July (budget) 32,600 March (actual) 42,600 August (budget) 30, 640 April (budget) September (budget) 27,600 May (budget) 102,600 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 Suppliers are paid $5.30 for a pair of earrings 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 Variable: Sales comissions Fixed: Advertising $ 330,000 Rent Salaries Utilities $ 13,500 Insurance $ 4,300 Depreciation $ 27,000 Insurance is paid on an annual basis, in November of each year, The company plans to purchase $22,500 in new equipment during May and $53,000 in new equiposent during June, both purchases will be for cash. The company declares dividends of $24.750 each quarter payable in the first month for the following quarter The company's balance sheet as of March 31 is given below 4 of sales $ 31,000 $ 12,000 Insurance is paid on an annual basis, in November of each year, The company plans to purchase $22,500 in new equipment during May and $53,000 in new equipment during June; both purchases will be for cash The company declares dividends of $24.750 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 $ 87,000 Accounts receivable (548,620 February sales: $579,369 March sales) 627,98 Inventory 143, 312 Prepaid Insurance 27,500 Property and equipment (net) 1.800.000 Total assets $ 1,965,792 Liabilities and Stockholders' Equity Accounts payable $ 113,000 Dividends payable 24,750 Common stock 1,060,000 Retained earnings 260,042 Total 1lities and stockholders equity $ 1,965,792 The company maintains a minimum cash balance of $63,000. 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 loon and as much of the loan as possible in increments of $1.000). While still retaining at least 563,000 in cath Required: Prepare a master budget for the three month perlod eriding June 30. Include the following detailed schedules 1. . A sales budget, by month and in total b. A schedule of expected cash collections, by month and in total CA 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 monthlyndin 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 $63,000 3. A budgeted income statement for the three month period ending June 30. Use the contribution approach 4. A budgeted balance sheet as of June 30

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