Answer 2-4

52,80 30,800 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 preparo 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-- $18 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) 22,800 June (budget) February (actual) 28,800 July (budget) 32,800 March (actual) 42,00 August (budget) April (budget) 67,800 September (budget) 27,500 May (budget) 102,800 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 $5.40 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase, the other hair 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: 4% of sales Variable: Sales comissions Fixed Advertising Rent Salaries utilities Insurance Depreciation $ 340,000 $32,000 $ 134,600 $14,000 $ 4,400 $ 28,800 Insurance inalni nn an annual hacis in Nowemhernfeachwear Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $ 340,000 $ 32,000 $ 134,0 $ 14,000 $ 4,400 $ 28,00 5402 Insurance is paid on an annual basis, in November of each year, The company plans to purchase $23.000 in new equipment during May and $54,000 in new equipment during June; both purchases win be for cash. The company declares dividends of $25,500 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 5 88,000 Accounts receivable (552,816 February sales; $616, 120 March sales) 668, 169 Inventory 146,448 Prepaid insurance 28,00 Property and equipment (net) 1,090,000 Total assets 5 2,028,688 Liabilities and Stockholders' Equity Accounts payable $ 114,000 Dividends payable 25,500 Connon stock 1,080,000 Retained earnings 801,188 Total liabilities and stockholders' equity $ 2,620,608 The company maintains a minimum cash balance of $64,000. 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 $1000), while still retaining at least $64.000 in cash, May June Quarter 0 0 0 0 0 0 0 0 Earrings Unlimited Cash Budget For the Three Months Ending June 30 April Beginning cash balance Add collections from customers Total cash available Loss cash disbursements: Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends pald Total cash disbursements 0 Excess (deficiency) of cash available over disbursements 0 Financing: Borrowings Repayments Interest Total financing $ S Ending cash balance 0 0 o 0 0 0 0 0 0 0 0 0 0 0 0 0 OO OO $ 0 S $ 0 Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Sales Variable expenses Beginning merchandise inventory Purchases Ending merchandise inventory 0 0 Fixed expenses: 0 0 0 Earrings Unlimited Budgeted Balance Sheet June 30 Assets Total assets S Liabilities and Stockholders' Equity $ 0 Total liabilities and stockholders' equity