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Case Study 2 Lux Enterprises: Cash Budget and Budgeted Financial Statements This case study provides practice in preparing an annual budget for a company, including a cash budget and budgeted nancial statements. Facts Lux Enterprises Inc. (Lux) is a wholesale distributor of earrings. At the start of its second quarter (Q2), Lux hires you to manage its operations. Lux has not prepared budgets in the past, but you decide to prepare a budget for Q2. Lux sells many styles of earrings, all at a selling price of $10 per pair. Actual unit sales for Q1 and budgeted unit sales for Q2 and Q3 are as follow: Actual Unit Sales Budgeted unit Sales January 20,000 April 65,000 July 30,000 February 26,000 May 100,000 August 28,000 March 40,000 June 50,000 September 25,000 The cOncentration of sales in the spring is due to Mother's Day. All inventory sales are made on credit and bad debts are negligible. Lux collects 20% in the month of sale, 70% in the following month, and 10% in the second month following the sale. Lux's only cash collections are om inventory sales. Lux maintains an ending inventory balance Sufcient to supply 40% of the budgeted unit sales in the following month. Lux pays its suppliers $4 for a pair of earrings. All inventory purchases are paid 50% in the month of purchase and 50% in the following month. Lux's monthly operating expenses, other than cost of goods sold, are as follows: Monthly Expenses Variable expenses: Sales commissions 3% of sales Fixed expenses: Advertising expense $200,000 Rent expense $18,000 Salary expense $106,000 Utility expense $7,000 Insurance expense $3,000 Depreciation expense $14,000 All expenses, other than insurance and depreciation, are paid in cash in the month the expense is incurred. Lux pays its annual insurance premium of $36,000 on November 1. Lux plans to purchase for cash $26,000 of new equipment in May and $30,000 of new equipment in June. In March, Lux declared a $15,000 dividend which is payable on April 15. Lux's balance sheet on April 1 is as follows: Assets Cash $ 224,000 Accounts receivable [a] 346,000 Inventory [b] 104,000 Prepaid insurance 21,000 PP&E, net of depreciation 950,000 Total assets $1,645,000 Liabilities and Stockholders' Equity Accounts payable [c] $ 100,000 Dividends payable 15,000 Common stock 800,000 Retained earnings 730,000 Total liabilities and stockholders' equity $1,645,000 [a] Includes $26,000 of February sales (10%), plus $320,000 of March sales (80%) [b] 26,000 units (40% of budgeted sales in April) at $4 per unit [c] 50% of inventory purchases in March Required Prepare a master budget for the second quarterApril, May, and June. Include the following detailed schedules: 1. Sales budget, by month and in total Merchandise purchases budget, by month and in total Budgeted cash collections from inventory sales, by month and in total Budgeted cash payments for inventory purchases, by month and in total Comprehensive cash budget, by month and in total Budgeted contribution margin income statement for three months ending June 30 Budgeted balance sheet as of June 30 HP'P'PP'E" Templates and check gures can be found on the following pages. You can perform the calculations by hand, or you can create the budget in Excel. In either case, you must use the format indicated by the templates. Upload your submission to Canvas as a PDF le by the due date indicated in the course schedule. The naming c0nvention is \"Case 2 _your last name.\" 1. Sales Budget, Q2 April May June Quarter Budgeted unit sales x Selling price per unit Total sales revenue 2. Merchandise Purchases Budget, Q2 April May June Quarter Budgeted unit sales + Desired ending inventory Total units needed - Beginning inventory Required purchases x Per-unit cost Merchandise purchases 3. Budgeted Cash Collections from Inventory Sales, Q2 April May June Quarter February sales March sales April sales May sales June sales Total cash collections 4. Budgeted Cash Payments for Inventory Purchases, Q2 April May June Quarter Accounts payable, April 1 April purchases May purchases June purchases Total cash payments5. Comprehensive Cash Budget, Q2 April Beginning cash balance May June + Collections from customers Cash payments Ending cash balance 6. Budgeted Income Statement, Q2 (3 months) Sales Variable costs Contribution margin Fixed costs Net income T. Budgeted Balance Sheet, June 30 Assets Total assets Liabilities and Stockholders' Equity Total liabilities and stockholders' equity _ Check gures : - Budgeted sales revenue in Q2 is $2, 150,000 - Budgeted inventory purchases in Q2 are $804, 000 - Budgeted cash collections in Q2 are $1, 996, 000 - Budgeted cash payments for inventory purchases in Q2 are $820, 000 - Budgeted cash balance on June 30 is 32 71,5 00 - Budgeted net income in Q2 is SI 811500 - Budgeted totcul assets on June 30 is $1, 795, 5 00