Malabar Gold Co., a distributor of jewels for multiple retail stores found in malls around the

country, has recently engaged you as an executive apprentice. In the past, the firm has not

implemented a budget and experienced cash flow issues at specific periods.

prepare a master budget for the forthcoming second quarter since you have a lot of experience with

budgeting. In order to do this, you have collaborated with accounting and other departments to

compile the data shown below.

The company sells many styles of jewels, but all are sold for the same price—$18 per pair. Actual

sales of jewels for the last three months and budgeted sales for the next six months follow (in pairs

of jewels):

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

The concentration of sales before and during May is due to National holiday Day. Sufficient

inventory should be on hand at the end of each month to supply 40% of the jewels sold in the

following month.

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Suppliers are paid $5.40 for a pair of jewels. 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. 20%

of a month's sales are collected in the month of sale and 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

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

$23,250 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 $ 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

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Retained earnings 801,108

Total liabilities and stockholders' equity $ 2,020,608

The company maintains a minimum cash balance of $64,000. 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 $64,000 in cash.

In Addition, assume that in the month of July, the Malabar Gold Co. has obtained some Actual data

of the 2nd quarter. The company has approached you to analyze the actual data and compare the

followings with the budgeted amounts.

Sales 4032200

Cash Collected 3700000

Merchandise Purchased 1130700

Cash paid for merchandise purchase 1143800

Advertising Expenses 1050000

Contribution Margin 2703992

Net Income 996692

Required:

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

schedules:

1. A sales budget, by month and in total.

2. A schedule of expected cash collections, by month and in total.

3. A merchandise purchases budget in units and in dollars. Show the budget by month and in

total.

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4. A schedule of expected cash disbursements for merchandise purchases, by month and in

total.

5. A cash budget. Show the budget by month and in total.

6. A budgeted income statement for the three-month period ending June 30. Use the

contribution approach.

7. A budgeted balance sheet as of June 30.

8. Variance Analysis Sheet: Prepare a comparison between the Budgeted and the actual

Quarterly figures, and write your comments on the variances (differences) for the followings