CASE 9-30 Master Budgst with Supporting Schedules 02, LO4, LOB, Loa, Lo10) just been hired as a new management trainee by Earrings Unlimited, a distributor of of the year has experienced You have j Xcel earrings to various retail outlets located in shoppiag malls across the country. In the past, the com- pany has done very litle in the way of budgeting and at certaim times a shortage of cash. Since you are well t for tbe upcoming second quarter n insegrated budgeting program. gather the information assembled below trained in budgeting, you have decided to prepare comprehensive budgets in order to show management the benefits that can be gained from To this end, you have worked with accounting and otber areas to sells many styles of earrings, but all are sold for the same price-$10 per pair. The company Acnual sales of earrings for the last three months and budgeted sales for the next six mouths follow (in pairs of earrings) 20,000 une (budget) 26,000 July (budget) 50,000 Feoruary (actual March (actual) April (budget) May (budged. 65,000 September (budget). .25,000 100,000 The concentration of sales before and during May is due to Mother's Day. Sufficient inventory shouid be ca hand at the end ofeach month to supply 40% of the earrings sold in the following month. Suppliers are paid $4 for a pair of earrings. One-half of a month's purchases is paid for in the mooth of purchase; the other half is paid for in the following month. All sales are on credit, with no discount and payable within 15 days. The company has found, however, that only 20% of a month's sales are collected in the month of sale. An additianal 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 expeases for the company are given below Fixnd: Advertising... Rent Salaries Utilities $200,000 $18,000 $106,000 $7,000 $3,000 $14,000 Insurance is paid on an annual basis, in November of each year eguipmeat during June; both parchases will be for cash. The company declares d 15,000 each quarter, payable in the first month of the following quarter The A listing of the company's ledger accounts as of March 31 is given below: Assets ....$74,000 346,000 104,000 21,000 950,000 Cash Accounts recelvable ($26,000 February sales; Property and eouipmat $1,495 Liablitles and Stockholders' Equity 15,000 800,000 580,000 Capital stock . . $1.495,000 The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month. The company has an agreemeat 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 $50,000 in cash. Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets: 1. a. A sales budget, by month and in total. b. A scbedule of expected cash collections from sales, by month and in total. A merchandise purchases budget in units and in dollars. Show the budget by month and c. in total. d A scbedule 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 3. . A budgeted balance sheet as of June 30 be needed to maintain the minimum cash balance of $50,000. A budgeted income statement for the three-month period ending June 30. Use the contribution approach EARRINGS UNLIMITED Cash Budget For the Three Months Ending June 30 May June Quarter Cash balance, beginning receipts from customers otal cash available Merchandise purchases Advertising Rent Salaries Commissions (4% of sales) Utities Equipment purchases Dividends paid Total disbursements Excess (deficiency) of receipts over disbursements Borrowings Repayments Interest Total financing Cash balance, ending Requirement 3 EARRINGS UNLIMITED Budgeted Income Statement For the Three Months Ending June 30 Sales in units Sales Variable expenses: Cost of goods sold Commissions ntribution margin Fixed expenses: Advertising Rent Salaries Utilities Insurance Depreciation Net operating income ss interest expense et income Student Name: Class: Case 09-30 EARRINGS UNLIMITED Budgeted Balance Sheet June 30 Assets ash Accounts receivable Inventory Prepaid insurance Property and equipment, net Total assets Liabilities and Equity ounts payable, purchases Dividends payable Capital stock, no par Retained earnings Total liabilities and equity unts receivable at June 30: May sales June sales Total Retained earnings at June 30: Balance, March 31 Add net income Total Less dividends declared Balance, June 30