Case 8-33 Master Budget with Supporting Schedules (LO8-2, LO8-4, LO8-8, LO8-9, LO8-10) 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-$13 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) 20,600 26, 600 40, 600 65,600 100, 600 June (budget) July (budget) August (budget) September (budget) 50,600 30, 600 28,600 25,600 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 $4.30 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: 4% of sales Variable: Sales commissions Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $ 230,000 $ 21,000 $ 112,000 $ 8,500 $ 3,300 $ 17,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $17,500 in new equipment during May and $43,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $17,250 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: $ 77,000 Assets Cash Accounts receivable ($34,580 February sales; $ 422, 240 March sales) Inventory Prepaid insurance Property and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Dividends payable Common stock Retained earnings Total liabilities and stockholders' equity 456,820 112,832 22,500 980,000 $ 1,649,152 $ 103,000 17,250 860,000 668,902 $ 1,649,152 The company maintains a minimum cash balance of $53,000. 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 $53,000 in cash. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Req 1D Req 2 Req3 Req 4 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. $ February sales March sales April sales May sales June sales Total cash collections Earrings Unlimited Schedule of Expected Cash Collections April May June $ 34,580 369,460 52,780 170,560 596,960 85,280 261,560 915,460 131,560 $ 574,600 $ 911,300 $ 1,132,300 Quarter 34,580 422,240 852,800 1,177,020 131,560 2,618,200 $ Reg 1A Req 10 > Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Req 1D Req 2 Req3 Req 4 Prepare a master budget for the three-month period ending June 30 that includes a merchandise purchases budget in units and in dollars. Show the budget by month and in total. (Round unit cost to 2 decimal places.) Earrings Unlimited Merchandise Purchases Budget April May Budgeted unit sales 65,600 100,600 Add: Desired ending merchandise inventory 40,240 20,240 Total needs 105,840 120,840 Less: Beginning merchandise inventory 34,580 52,780 Required purchases 71,260 68,060 Unit cost $ 4.30 $ 4.30 Required dollar purchases $ 306,418 $ 292,658 June Quarter 50,600 216,800 12,2407 12,240 62,840 229,040 20,2401 3 4,580 42,600 194,460 4.30 $ 4.30 183,180 $ 836,178 $ $ Earrings Unlimited Budgeted Balance Sheet June 30 Assets 0 Total assets $ Liabilities and Stockholders' Equity Total liabilities and stockholders' equity $