Case 8-33 (Algo) Master Budget with Supporting Schedules [LO8-2, LO8-4, LO8-8, LO8-9, L08-10] 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-$20 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) February (actual) March (actual) April (budget) May (budget) 23,200 29, 200 43,200 68,200 103,200 June (budget) July (budget) August (budget) September (budget) 53,200 33,200 31,200 28,200 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 $5.60 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 Monthly operating expenses for the company are given below: 4% of sales Variable: Sales commissions Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $360,000 $ 34,800 $ 138,000 $ 15,000 $ 4,680 $ 30,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $24,000 in new equipment during May and $56,000 in new equipment during June, both purchases will be for cash. The company declares dividends of $27000 each quarter payable in the first month of the following quarter The company's balance sheet as of March 31 is given below. The company's balance sheet as of March 31 is given below: 90,000 Assets Cash Accounts receivable ($58,480 February sales; $691,200 March sales) Inventory Prepaid insurance Property and equipment (net) Total sets Liabilities and Stockholders Equity Accounts payable Dividends payable Coron stock Metained earnings Total liabilities and stockholders' equity 749,600 152,768 29,000 1,110,000 $ 2,131,368 $ 116,00 27,000 1,120,000 868,368 $2,131,368 The company maintains a minimum cash balance of 566,000. Alt 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 S1000 at the beginning of each month The Interest rate on these loons 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 566,000 in cash Required Req 1A Req 1B Req 10 Reg 10 Req 2 Req3 Reg 4 Prepare a master budget for the three-month period ending June 30 that includes a scijedule of expected for merchandise purchases, by month and in total. Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June Quarter Accounts payable $ 116,000 $ 0 $ 0 $ 116,000 April purchases 0 0 0 May purchases 0 June purchases 0 Total cash payments $ 116,000 $ 0 $ 0 116.000 Wc CW ST May June Quarter 0 0 0 Earrings Unlimited Cash Budget For the Three Months Ending June 30 April Beginning cash balance Add collections from customers Totalcar avaliable 0 Les cash disbursements Merchandise purchases Advertising Rent Salaries Commons Us Ecument purchases Dividends and Total cash disbursements 0 Los ocheneno Ganhat over disbursements 0 Financing Bonowings 0 0 0 0 0 0 0 0 0 D 0 o 0 Tanong Ending chance Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Variable expenses OOK Tences 0 0 Fixed expenses 0 0 0 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 Total assets $ Liabilities and Stockholders' Equity 0 Tobies and stockholders equity $ O