Check my 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-$12 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) 20,400 26,400 40,480 65,400 100,400 June (budget) July (budget) August (budget) September (budget) 50,400 30,400 28,400 25,400 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 $4.20 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: Monthly operating expenses for the company are given below: 4% of sales Variable: Sales commissions Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $ 220,000 $ 20,000 $ 110,000 $ 8,000 $ 3,200 $ 16,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $17,000 in new equipment during May and $42,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $16,500 each quarter, payable in the first month of the following quarter. Selected items from the company's March 31 balance sheet are as follows: $ 76,000 Cash Accounts receivable ($31,680 February sales; $387,840 March sales) Inventory Accounts payable Dividends payable 419,520 109,872 102,000 16,500 The company maintains a minimum cash balance of $52,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month. 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 $52,000. Required 1A Required 1B Required 1C Required 1D Required 2 Prepare a master budget for the three-month period ending June 30 that includes a sales budget, by Budgeted unit sales Selling price per unit Total sales Sales Budget April May June Quarter 65,400 100,400 50,400 216,200 $ 12) 5 1 2) $ 12 $ 12 | $ 784,800 $ 1,204,800 $ 604,800 $ 2,594,400 Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected month and in total. $ February sales March sales April sales May sales June sales Total cash collections Earrings Unlimited Schedule of Expected Cash Collections April May June $ 31,680 339,360 48,480 156,960 549,360 78,480 240,960 843,360 120,960 $ 528,000 $ 838,800 $ 1,042,800 Quarter 31,680 387,840 784,800 1,084,320 120,960 2,409,600 $ Required 1A Required 1B Required 10 Required 1D Required 2 Prepare a master budget for the three-month period ending June 30 that includes a merchandise purchases and in dollars. Show the budget by month and in total. Earrings Unlimited Merchandise Purchases Budget April May Budgeted unit sales 65,400 100,400 Add: Desired ending merchandise inventory 40,160 20,160 Total needs 105,560 120,560 Less: Beginning merchandise inventory 26,160 40,160 Required purchases 79,400 80,400 Unit cost 4.21 $ 4.2 Required dollar purchases $ 333,480 $ 337,680 June 50,400 12,160 62,560 20,160 42,400 4.2 178,080 Quarter 216,200 12,160 228,360 26,160 202,200 $ 4.2 $ 849,240 $ $ Required 1A Required 1B Required 1C Required 1D Required 2 Prepare a master budget for the three-month period ending June 30 that includes a schedule for merchandise purchases, by month and in total. Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June Quarter Accounts payable $ 102,000 $ 102,000 April purchases 166,740 166,740 333,480 May purchases 168,840 168,840 337,680 June purchases 89,040 89,040 Total cash payments $ 268,740 $ 335,580 $ 257,880 862,200