Chapter 9 The company sells many styles of earrings, but all are sold for the same price-S10 per pair Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings) 20.000 26.000 40.000 65.000 100.000 January (actual February (actual March (actus April budget May (budget 50,000 30.000 28.000 25,000 Jure budget July budget August (budget September (budget) 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 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 with no discount, and payable within 15 days. The company has found, however, that only 20% of a mooth'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 comissions Fored Advering Rent Salaries Ultes Insurance Depreciation $200,000 $18.000 $106.000 $7,000 $3.000 $14,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase 516,000 inw equipment during May and $40.000 in new equipment during June, both purchases will be for cash. The company declares dividends of SI5.000 each quarter payable in the fint month of the following quarter. A listing of the company's ledger accounts as of March 31 is given below: s 74.000 346.000 104.000 21.000 950.000 $1,495.000 Cash Accounts receivable ($20.000 February Sales $320000 Merch sales) Inventory Prepeld Insurance Property and equipment ineti Total assets Liabilities and Stockholders' Equity Accounts payable Dienos payable Common ock Retained earnings Total des and stockholders'uty $ 100.000 15,000 300,000 580.000 $1.495.000 The company maintains a minimum cash balance of SS0.000. All borrowing is done at the beginning of smooth any repayments are made at the end of a month. Master Budgeting 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 (n increments of $1,000), while still retaining at least $50,000 in cash. Required: C Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets: 1 A sales budget, by month and in total. A schedule 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 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 $50,000. 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
