Help with creating a master budget with supplied information.

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 has experienced a shortage of cash at certain times of the year.

Because you are well trained in budgeting, you have decided to prepare comprehensive budgets for the upcoming second quarter 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$10 per pair. Actual sales of earrings for the last 3 months and budgeted sales for the next 6 months follow (in pairs of earrings).

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 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.

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.

A listing of the company's ledger accounts as of March 31 is given below.

The company maintains a minimum cash balance of $50,000. 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 $50,000 in cash.

Required:

Prepare a master budget for the 3-month period ending June 30. Include the following detailed budgets.

1.

o a. A sales budget, by month and in total

o b. A schedule of expected cash collections from sales, by month and in total

o c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

o 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 3-month period ending June 30. Use the contribution approach

4. A budgeted balance sheet as of June 30

SALES BUDGET:
			April	May	June	Quarter
Budgeted unit sales
Selling price per unit
Total sales
SCHEDULE OF EXPECTED CASH COLLECTIONS:
			April	May	June	Quarter
February sales
March sales
April sales
May sales
June sales
Total cash collections
MERCHANDISE PURCHASES BUDGET:
			April	May	June	Quarter
Budgeted unit sales
Add desired ending inventory
Total needs
Less beginning inventory
Required purchases
Cost of purchases @ $4 per unit
BUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES:
			April	May	June	Quarter
Accounts payable
April purchases
May purchases
June purchases
Total cash payments
EARRINGS UNLIMITED
CASH BUDGET
FOR THE 3 MONTHS ENDING JUNE 30
			April	May	June	Quarter
Cash balance
Add collections from customers
Total cash available
Less disbursements
Merchandise purchases
Advertising
Rent
Salaries
Commissions
Utilities
Equipment purchases
Dividends paid
Total disbursements
Excess (deficiency) of receipts
over disbursements
Financing:
Borrowings
Repayments
Interest
Total financing
Cash balance, ending
EARRINGS UNLIMITED
BUDGETED INCOME STATEMENT
FOR THE 3 MONTHS ENDED JUNE 30
Sales					-
Variable expenses:
Cost of goods sold				-
Commissions				-	-
Contribution Margin					-
Fixed expenses:
Advertising				-
Rent				-
Salaries				-
Utilities				-
Insurance				-
Depreciation				-	-
Net operating income					-
Interest expense					-
Net income					-
EARRINGS UNLIMITED
BUDGETED BALANCE SHEET
JUNE 30
Assets:
Cash
Accounts receivable (see below)
Inventory
Prepaid insurance
Property and equipment, net
Total assets
Liabilities and Stockholders' Equity
Accounts payable, purchases
Dividends payable
Capital stock
Retained earnings (see below)
Total liabilities and stockholders' equity
Accounts receivable at June 30:
May sales x ?%
June sales x ?%
Total
Retained earnings at June 30:
Balance, March 31
Add net income
Total
Less dividends declared
Balance, June 30

February (actual) . .. 26,000 July (budget) 30,000 40,000 August (budget) . .. .28,000 25,000 April (budget) . May (budget)... 65,000 September (budget)