Question
Hello, please help with Letter C. You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various
Hello, please help with Letter C.
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 comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. 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$18 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) | 22,800 | June (budget) | 52,800 |
February (actual) | 28,800 | July (budget) | 32,800 |
March (actual) | 42,800 | August (budget) | 30,800 |
April (budget) | 67,800 | September (budget) | 27,800 |
May (budget) | 102,800 | ||
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The concentration of sales before and during May is due to Mothers 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 $5.4 for a pair of earrings. One-half of a months 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 months 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:
Variable: | |||
Sales commissions | 4% | of sales | |
Fixed: | |||
Advertising | $ | 340,000 | |
Rent | $ | 32,000 | |
Salaries | $ | 134,000 | |
Utilities | $ | 14,000 | |
Insurance | $ | 4,400 | |
Depreciation | $ | 28,000 | |
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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 $25,500 each quarter, payable in the first month of the following quarter.
A listing of the companys ledger accounts 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 | $ | 114,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends payable | 25,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock | 1,080,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retained earnings | 801,108 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders equity | $ | 2,020,608 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
1. Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
a. A sales budget, by month and in total.
Sales Budget April May June Quarter Budgeted unit sales 67,800 102,800 52,800 223,400 Selling price per unit $18 $18 $18 $18 Total sales $1,220,400 $1,850,400 $950,400 $4,021,200 b. A schedule of expected cash collections from sales, by month and in total. Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter February sales $51,840 0 0 $51,840 March sales 539,280 77,040 0 616,320 April sales 244,080 854,280 122,040 1,220,400 May sales 0 370,080 1,295,280 1,665,360 June sales 0 0 190,080 190,080 Total cash collections $835,200 $1,301,400 $1,607,400 $3,744,000 c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. (Round unit cost of purchases to 1 decimal place.)
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