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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-$16 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) 22,000 June (budget) 52,000 February (actual) 28,000 July (budget) 32,000 42,000 August (budget) 30,000 April (budget) 67,000 September May (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 40% of the earrings sold in the following month. Suppliers are paid $5.00 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase the other hall 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 March (actual) (budget) 27,000 102,000 Monthly operating expenses for the company are given below: Variable: Sales commission 41 of sales Fixed Advertising $ 300.000 Rent $ 28,000 Salaries $ 126,000 Utilities $ 12,000 Insurance $ 4,000 Depreciation $ 24,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $21,000 in new equipment during May and $50,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $22,500 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: assets Cash $ 84,000 Accounts receivable ($44,800 February sales: 5537,600 March sales) 582,400 Inventory 134,000 Prepaid insurance 25,000 Property and equipment (net) 1,050,000 Total aseta $ 1,076,400 Liabilities and stockholders' Equity Accounts payable $ 110,000 Dividends payable 22.500 Connon stock 1,000,000 Retained earnings 743.900 Total liabilities and stockholders' equity 91.876,400 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. Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules: 1.0. A sales budget, by month and in total b. A schedule of expected cash collections, by month and in total C. A merchandise purchases budget in units and in dollars. Show the budget by month and in total 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 $60,000 3. A budgeted Income statement for the three month period ending June 30. Use the contribution approach. 4. A budgeted balance sheet as of June 30. Prepare a master budget for the three-month period ending June 30 that includes a budgeted income statement for the three- month period ending June 30. Use the contribution approach. Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Sales $3,536,000 Variable expenses Selling and administrative $ 1,105,000 expenses Interest expense 141,440 Contribution margin Fixed expenses 1.246,440 2,289,560 solo Advertising Rent Salaries Utilities Insurance Depreciation Net operating income Interest expense MHH #Mw OOO 900,000 84,000 378,000 36,000 11.143 72,000 1,481.143 808,417 2,730 HOS ARZ Prepare a master budget for the three-month period ending June 30 that includes a budgeted balance sheet as of June 30. Earrings Unlimited Budgeted Balance Sheet June 30 Assets Cash $ 702 930 Accounts receivable 828,800 Prepaid insurance 14,857 Inventory 64.000 Property and equipment, not 1,049,000 > s Total assets 2.659,587 Liabilities and Stockholders' Equity Accounts payable $ 110,000 Dividends payable 22.500 Common stock 1,000,000 Retained camingo 1,527,0873