Check Case (Algo) (LO8-2, LO8-4, L08-8, 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) 20,200 June (budget) 50,200 February (actual) 26,200 July (budget) 30, 200 March (actual) 40,200 August (budget) 28,200 April (budget) 65,200 September (budget) May (budget) 100, 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 $410 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 sole. 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: 25,200 4 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: Assets Cash $ 75,000 Accounts receivable ($28,828 February sales; $353,760 March sales) 382,580 Inventory 106,928 Prepaid insurance 21,500 Property and equipment (net) 960,000 Total assets $ 1,546,008 Liabilities and Stockholders' Equity Accounts payable $ 101,000 Dividends payable 15,750 Common stock 820,000 Retained earnings 699,258 Total liabilities and stockholders' equity $ 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. Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Req 1C Req 1D Reg 2 Req3 Reg 4 Prepare a master budget for the three-month period ending June 30 that includes a sales budget, by month and in total. Sales Budget April May June Quarter Budgeted unit sales 65,200 100,200 50,200 215,600 Selling price per unit $ 11 $ 11 $ 11 $ 11 Total sales $ 717,200 $ 1,102,200 $ 552,200 $ 2,371,600 le 1 Reg 18 > Reg 1A Reg 1B Req 1C Reg 1D Reg 2 Reg 3 Reg 4 Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected cash collection month and in total. Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter $ 0 0 0 February sales March sales April sales May sales June sales Total cash collections 0 0 $ 0 $ 0 $ 0 $ 0 Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Reg 10 Req 1D Reg 2 Reg 3 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 Quarter 0 Earrings Unlimited Merchandise Purchases Budget April May Budgeted unit sales Add: Desired ending merchandise inventory Total needs 0 Less: Beginning merchandise inventory Required purchases 0 Unit cost Required dollar purchases $ 0 $ 0 0 0 0 0 0 $ 0 $ 0 O ferences Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 1C Req 1D Reg 2 Reg 3 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 June Quarter Accounts payable $ 101.000 $ 0 $ ols 101.000 April purchases 0 0 May purchases 0 June purchases 0 0 0 Total cash payments $ 101,000 $ 0 $ 101,000 May 0 . References Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Reg 10 Req 1D Reg 2 Req3 Reg 4 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 Quarter 0 0 0 0 Beginning cash balance Add collections from customers Total cash available Less cash disbursements Merchandise purchases Advertising Rent Salaries 0 0 0 0 Complete this question by entering your answers in the tabs below. 6 LA Reg 13 RIC Res 10 R2 R3 R4 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 Used Rated consument For the Three Mont Ende June 10 Sales 5 2.371.800 expenses Coat of goods told con 2371.000 Ferpen Advertising 5 Dondon 2.371.000 perating income Perenne come 2371.000 Ras2 R 6 points Reg 1A Reg 16 Reg 10 Reg 1D Reg 2 Req Part Prepare a master budget for the three month period ending June 30 that includes a budgeted balance sheet as of June 30 Earringe Unlimited Budgeted Balance Sheet June 30 Assets Cash Accounts receivable inventory Prepaid insurance Property and equipment, net References Total assets $ Liabilities and Stockholders' Equity Accounts payable Dividends payable Common stock Retained carings Total sales and Mockholders' equity R3