Maneyement UBT Project Question: (10 Marks) Due Date: 25/4/2020 mes of the year has experienced CASE 8-33 Master Budget with Supporting Schedules LO8-2. LO8-4. L08-8, L08-9. You have just been hired as a new management trainee by Earrings Unlimited, i earrings to various retail outlets located in shopping malls across the country. In the past pany has done very little in the way of budgeting and at certain times of the year has a shortage of cash. Since you are well trained in budgeting, you have decided to p a budget for the upcoming second quarter. To this end, you have worked with accomo 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 three months and budgeted sales for the next six month (in pairs of earrings): ave worked with accounting and other January (actual).... February (actual)..... March (actual)........ April (budget)........ May (budget) ....... 20,000 26.000 40.000 65,000 100.000 June (budget)......... July (budget)...... August (budget).... September (budget) ......... 50.000 30.000 28.000 25.000 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. 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: 4% of sales Variable: Sales commissions ... Fixed: Advertising...... Rent... Salaries......... Utilities ........... Insurance ........... Depreciation...... $200.000 $18.000 $106,000 $7,000 $3,000 $14,000 ew equipment during May and $40,000 in new for cash. The company declares dividends of Insurance is paid on an annual basis, in November of each year. The company plans to purchase $16,000 in new equipment du equipment during June; both purchases will be for cash. The $15.000 each quarter. payable in the first month of the following The company's balance sheet as of March 31 is given below. ACCT362 Spring 2019/2020 JBT ULUI Assets $ 74.000 346.000 104,000 21,000 950.000 $1,495,000 Cash. Accounts receivable ($26.000 February sales; $320,000 March sales)... Inventory......... ................................ Prepaid insurance... Property and equipment (net). Total assets. Liabilities and Stockholders' Equity Accounts payable. Dividends payable........... Common stock. Retained earnings... Total liabilities and stockholders' equity ............. $ 100,000 15.000 800,000 580.000 $1,495.000 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 incremen 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 three-month period ending June 30. Include the following detailed schedules: 1. a. 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. 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 three-month period ending June 30. Use the contribution approach. 4. A budgeted balance sheet as of June 30. ACCT362 Spring 2010
