Case Study: Malabar Gold Co., a distributor of jewels for multiple retail stores found in malls around the country, has recently engaged you as an executive apprentice. In the past, the firm has not implemented a budget and experienced cash flow issues at specific periods. You have chosen to prepare a master budget for the forthcoming second quarter since you have a lot of experience with budgeting. In order to do this, you have collaborated with accounting and other departments to compile the data shown below. The company sells many styles of jewels, but all are sold for the same priceS$18 per pair. Actual sales of jewels for the last three months and budgeted sales for the next six months follow (in pairs of jewels): January (actual) 22,800 June (budget) February (actual) 28,800 July (budget) March (actual) 42,800 August (budget) April (budget) 67,800 September (budget) The concentration of sales before and during May is due to National holiday Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the jewels sold in the following month. Suppliers are paid $5.40 for a pair of jewels. 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. 20% of a month's sales are collected in the month of sale and an additional 70% 1s 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 $ 340,000 CRew TSm0 5 134,000 5 14,000 54,400 Depreciation $ 28,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $23,000 in new equipment during May and $54,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $23,250 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: Assets ! Cash | 88,000 Accounts receivable ($51,840 February sales; $616,320 March sales) 668,160 Inventory 146,448 | Prepaid insurance 28,000 Property and equipment (net) | 1,090,000 Total assets $ 2,020,608 Liabilities and Stockholders Equity ' Accounts payable S 114,000 Dividends payable | 25,500 Common stock 1,080,000 Retained eamings 801,108 Total liabilities and stockholders' equity $ 2,020,608 The company maintains a minimum cash balance of $64,000. 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 $64,000 in cash. In Addition, assume that in the month of July, the Malabar Gold Co. has obtained some Actual data of the 2nd quarter. The company has approached you to analyze the actual data and compare the followings with the budgeted amounts. Cash Collected Merchandise Purchased Cash paid for merchandise purchase Advertising Expenses 1050000 Contribution Margin 2703992 Net Income 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. 2. A schedule of expected cash collections, by month and in total. 3. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 5. A cash budget. Show the budget by month and in total. A budgeted income statement for the three-month period ending June 30. Use the contribution approach. A budgeted balance sheet as of June 30. Variance Analysis Sheet: Prepare a comparison between the Budgeted and the actual Quarterly figures, and write your comments on the variances (differences) for the followings. Sales Cash Collected Merchandise Purchased Cash paid for merchandise purchase Advertising Expenses Contribution Margin m o a0 o P Net Income In preparing your answers in the excel sheets, should generally design the excel file to include the following sheets: 2 3 4 5 6. 7 8 9 10. 11. Budget launch page (content page) Beginning balance budget Budgeting assumptions Sales budget Schedule expected cash collections Merchandise purchases budget Schedule expected cash disbursements Cash budget Budgeted income statement. Budgeted balance sheet. Variance Analysis Sheet