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-$11 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) 20,200 26,200 40,200 65,200 100, 200 June (budget) July (budget) August (budget) September (budget) 50,200 30,200 28,200 25,200 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 $4.10 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: 43 of sales Variable: Sales commissions Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $ 210,000 $ 19,000 $ 108,000 $ 7,500 $ 3,100 $ 15,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $16,500 in new equipment during May and $41,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,750 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: 75,000 Assets Cash Accounts receivable ($28,820 February sales; $353, 760 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 382, 580 106.928 21,500 960.000 $ 1,546,008 $ 101,000 15,750 820,000 609,258 $ 1,546,008 The company maintains a minimum cash balance of $51,000. 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 $51,000 in cash. Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules: 1. a. 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 that would be needed to maintain the minimum cash balance of $51,000. 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. Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules: 1. a. 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 that would be needed to maintain the minimum cash balance of $51,000. 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. X Answer is not complete. Complete this question by entering your answers in the tabs below. Reg 1a | Req 18 Regic Req 1C Req 1D Req 10 Rega Reg 2 Reg 3 Req3 Reg 4 Rega Prepare a master budget for the three-month period ending June 30 that includes a sales budget, by month and in total. Budgeted unit sales Selling price per unit Sales Budget April May 65,200 100,200 $ 11 $ 11 117.200 1.102,200 June 50,200 S 11 $52,200 Quarter 215,600 S 11 2.371,600 Total sales - Req 1A Req 1B > Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules: 1. a. 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 that would be needed to maintain the minimum cash balance of $51,000. 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. Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Req 1D Req 2 Req3 Reg 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. Quarter 28.820 February sales $ March sales Earrings Unlimited Schedule of Expected Cash Collections April May June $ 28,820 309,540 44,220 143,440 502,040 71,720 220,440 771,540 110,440 $ 481,800 $ 766,700 $ 953,700 April sales May sales 353,760 717,200 991,980 110,440 $ 2,202,200 June sales Total cash collections Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules: 1. a. 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 that would be needed to maintain the minimum cash balance of $51,000. 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. Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 1C Req 1D Req 2 Req3 Reg 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.) June Earrings Unlimited Merchandise Purchases Budget April May Budgeted unit sales 65,200 100,200 Add: Desired ending merchandise inventory 40,080 20,080 Total needs 105,280 120,280 Less: Beginning merchandise inventory 26,080 40,080 Required purchases 79,200 80,200 Unit cost $ 4.10 $ 4.10 Required dollar purchases $ 324,720 $ 328,820 50,200 12,080 62,280 20,080 42,200 $ 4.10 $ 173,020 Quarter Quarte 215,600 12,080 227,680 26,080 201,600 $ 4.10 $ 826,560 Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules: 1. a. 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 that would be needed to maintain the minimum cash balance of $51,000. 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. X Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 1C Req 1D Req 2 Req3 Reg 4 Prepare a master budget for the three-month period ending June 30 that includes 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 $ 81,524 X $ 81,524 April purchases 162,360 162,360 324,720 May purchases 164,410 164,410 328,820 June purchases 86,51086,510 Total cash payments 243,884 326,770 250.920 821,574 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 $51,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May June $ 75,000 $ 167,862 481,800766,700953,700 556,800 9 34,562 953,700 Quarter 0 Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Merchandise purchases Advertising Rent 162,360 X 210,000 19,000 108,000 28,688 7,500 Salaries 326,770 210,000 19,000 108,000 44,088 7,500 16,500 250,920 210,000 19,000 108,000 22,088 7,500 41,000 Commissions Utilities 740.050 630,000 57,000 324,000 94,864 22,500 57,500 15,750 1,941,664 (1,941,664) 15,750 551,298 5,502 731,858 202,704 658,508 295,192 Equipment purchases Dividends paid Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Total financing Ending cash balance $ 5,502 $ 202,704 $295,192 (1.941.664) Req 1A Reg 1B Reg 1C Req 1D Req 2 Req3 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: Fixed expenses: 0 0 Reg 3 Req 1A Req 1B Req 1C Req 1D Req2 Req 2 Req3 Reg 4 Rega | 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 Liabilities and Stockholders' Equity Total liabilities and stockholders' equity $ 0