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You have just been hired as a new management trainee by Earrings Unlimited. a distributor of earnngs to various retail outlets located in shopping
You have just been hired as a new management trainee by Earrings Unlimited. a distributor of earnngs 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 Since you are well "aimed in budgeting. you have decided to prepare a master budget for the upcoming second quarter To this end. have worked with accounting and other areas to gather the information assembled below. The Company Sells many Style-S Of but all are Sold for the Same priceS12 per pair, Actual Sale-S Of for the last three months and budgeted sales for the next six months follcnv On pairs of earrings): 419, 52e 872 February March ( budget) 40 ( budget) (budget) August ( Septber (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 Of the earrings Sold in the follCming Suppliers are paid $420 for a pair of earrings. Onehalt ot a month's purchases is paid for in the month of purchase the other half is paid in the following montm All Sales are on Credit Only 20% Of a month'S Sales Collected in the month Of Sale An additional iS Collected in the foldwing month, and the remaining Collected in the month following Sale, debts have negligible. Monthly operating expenses for the Company are given below: Ad%.rtising 4S of s 22e,e eee s Ile,eee 8 , eee 3,2ee 16. eee Insurance '-S paid on an annual basis. in November Of each year. The company plans to purchase S17000 in new equipment during May and $42,000 in new equipment during June both purchases will be for cash. The company declares dividends of SISSOO each quarter. payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: Inventory prepaid p rape ety receivable ($31.60 February (net) Equity sales; SY87.ue payable Dividends payable Retained S lez, eee 892 and equRy The company maintains a minimum Cash Of All borrowing iS at the beginning Of month: any repayments are made at the end of a month. The company has an agreement with a bank that allmvs the company to borrow in increments of $1,000 at the beginning of each month, The interest rate on these loans is per month and for simplicity we 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 SI,OOO). while still retaining at least $52,000 in cash.
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