Buliding Your Skills Case (LOS-2, LOB 4, LOB-8, LO8-9, LOV-10) You have just been hired as a new management trainee by Earrings Unimed, butor of earrings to various retail outlets located in shopping mals 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 trees together the information assembled below The company ses many styles of earrings, but olore sold for the same price120 per poi Actual sales of earrings for the last three months and budgeted sales for the next six months follow in pairs of ceringat January (actual February Cactual) Purch actual feril het May (Budget) June (hudget July (budget) 41.20 August (budget 48,20 September budget 23,200 The concentration of sales before and during May is due to Mother's Day Suficient 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 $560 for a pair of carings. One half of 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 month's soles are collected in the month of sale. An additional 70% is collected in the following month, and the remaining to collected in the second month following sele Bed debts have been negligible Monthly operating expenses for the company are given below. Variable Sales como Advertising $300.000 $14.00 $110.000 $15.00 54. $10.000 utilities Insurance Depreciation Insurance is paid on an annual basis, in November of each year The company plans to purchase $24,000 in new equipment during Mey and $56.000 in new equipment during June, both purchases will be for cash. The company declares dividends of $27,000 each querer poyeble in the first month of the following quartet The company's balance sheet as of March 31 is given below. sets 1 ya. $ 2.113 Accounts receivable (February sales: 03.12 March sales) Inventory Prepaid insurance Property and equipment () Total assets Liabilities and Stockholders Iquity Accounts payable Dividends payable Como se Retained earnings Total liabilities and stockholders equity 1 116.00 27. 1,120. $ 2,111, The company maintains a minimum cash balance of $66.000. All borrowing is done at the beginning of a month any repayments ere made of the end of a month The company has an agreement with a bank that allows the company to borrow in increments of $1000 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 el 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 $66.000 in cash. Required Prepare a master budget for the three month period ending 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 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 the would be needed to maintain the minimum cash balance of $66,000 3. A budgeted income statement for the three-month period ending June 20. Use the contribution approach 4. A budgeted balance sheet as of June 30. Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected cash collections, by month and in total. Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter $ 0 February sales March sales April sales May sales June sales Total cash collections 0 0 0 0 $ 0 $ 0 $ 0 $ 0 Earrings Unlimited Merchandise Purchases Budget April May June Quarter Budgeted unit sales 0 Total needs 0 0 0 0 0 0 0 0 Required purchases Unit cost Required dollar purchases $ 0 S 0 $ 0 $ 0 Reg 4 Prepare a master budget for the three-month period ending June 30 that indudes a schedule of expected cash disbursements for merchandise purchases, by month and in total. Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June Quarter Accounts payable $ 0 April purchases 0 May purchases 0 June purchases ol $ Total cash payments 0 $ 0 $ 0 0 Req 1A Reg 1B Reg 10 Req ID Reg 2 Reg 3 Reg 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. Determine any borrowing that would be needed to maintain the minimum cash balance of $66,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Quarter 0 0 0 0 0 Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May June Beginning cash balance Add collections from customers Total cash available 0 0 Less cash disbursements Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid Total cash disbursements 0 0 Excess (deficiency) of cash available over disbursements 0 0 Financing Borrowings Repayments Interest 0 0 Total financing $ os os Ending cash balance 0 0 0 0 0 0 0 0 0 0 0 0 os 0 Reg 2 Reg 3 Reg 4 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 Variable expenses 0 0 Fuced expenses 0 0 S 0 Reg 1A Reg 1B Req 10 Reg 10 Req 2 Reg a Reg 4 Prepare a master budget for the three-month period ending June 30 that includes a budgeted balance sheet as of June 30. Earrings Unlimited Budgeted Balance Sheet June 30 Assets 0 Total assets S Liabilities and Stockholders' Equity $ 0 Total liabilities and stockholders' equity Earrings Unlimited Merchandise Purchases Budget April May June Quarter Budgeted unit sales 0 Total needs 0 0 0 0 0 0 0 0 Required purchases Unit cost Required dollar purchases $ 0 S 0 $ 0 $ 0 Reg 4 Prepare a master budget for the three-month period ending June 30 that indudes a schedule of expected cash disbursements for merchandise purchases, by month and in total. Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June Quarter Accounts payable $ 0 April purchases 0 May purchases 0 June purchases ol $ Total cash payments 0 $ 0 $ 0 0 Req 1A Reg 1B Reg 10 Req ID Reg 2 Reg 3 Reg 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. Determine any borrowing that would be needed to maintain the minimum cash balance of $66,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Quarter 0 0 0 0 0 Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May June Beginning cash balance Add collections from customers Total cash available 0 0 Less cash disbursements Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid Total cash disbursements 0 0 Excess (deficiency) of cash available over disbursements 0 0 Financing Borrowings Repayments Interest 0 0 Total financing $ os os Ending cash balance 0 0 0 0 0 0 0 0 0 0 0 0 os 0 Reg 2 Reg 3 Reg 4 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 Variable expenses 0 0 Fuced expenses 0 0 S 0 Reg 1A Reg 1B Req 10 Reg 10 Req 2 Reg a Reg 4 Prepare a master budget for the three-month period ending June 30 that includes a budgeted balance sheet as of June 30. Earrings Unlimited Budgeted Balance Sheet June 30 Assets 0 Total assets S Liabilities and Stockholders' Equity $ 0 Total liabilities and stockholders' equity