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Case 8-30 Master Budget with Supporting Schedules [LO2, LO4, LO8, LO9, LO10]

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$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)	20,100	June (budget)	50,100
February (actual)	26,100	July (budget)	30,100
March (actual)	40,100	August (budget)	28,100
April (budget)	65,100	September (budget)	25,100
May (budget)	100,100

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 30% of the earrings sold in the following month.

Suppliers are paid $5 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 30% of a month's sales are collected in the month of sale. An additional 60% 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	5	% of sales
Fixed:
Advertising	$	199,900
Rent	$	17,900
Salaries	$	105,900
Utilities	$	6,900
Insurance	$	2,900
Depreciation	$	13,900

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

The company plans to purchase $16,100 in new equipment during May and $39,900 in new equipment during June; both purchases will be for cash. The company declares dividends of $14,500 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:

Assets			Liabilities and Stockholders' Equity
Cash	$	74,100	Accounts payable	$	119,000
Accounts receivable ($28,710 February sales; $308,770 March sales)		337,480	Dividends payable		14,500
Inventory		97,650	Capital stock		810,000
Prepaid insurance		21,100	Retained earnings		581,000
Property and equipment (net)		994,170
Total assets	$	1,524,500	Total liabilities and stockholders' equity	$	1,524,500

The company maintains a minimum cash balance of $60,000. 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 $60,000 in cash.

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

HERE IS WHAT I NEED ANSWERED

(d)	A schedule of expected cash disbursements for merchandise purchases, by month and in total. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Requirement 2:

A cash budget. Show the budget by month and in total. (Leave no cells blank - be certain to enter "0" wherever required. Deficiencies, repayments and interest should be preceded by a minus sign when appropriate. Total financing should be preceded by a minus sign when it consist of repayments and interest. Omit the "$" sign in your response.)

Requirement 3:

A budgeted income statement for the three-month period ending June 30. Use the contribution approach.(Input the amount as positive value. Omit the "$" sign in your response.)

Requirement 4:

A budgeted balance sheet as of June 30. (Omit the "$" sign in your response.)