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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-$14 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) February (actual) March (actual) April (budget) May (budget) 20,800 June (budget) 26,800 July (budget) 40,800 August (budget) 65,800 September (budget) 50,800 30,800 28,800 25,800 100,800 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 pald $4.40 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase; the other half isS 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 gliven below Variable: Sales commissions 4% of sales Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $ 240,000 S 22,000 S 114,000 $ 9,000 $ 3,400 $ 18,000 Insurance is paid on an annual basis, In November of each year. The company plans to purchase $18,000 in new equipment during May and $44,000 In new equipment during June, both purchases will be for cash. The company declares dividends of $18,000 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 Accounts receivable ($37,520 February sales; $456,960 $ 78,000 March sales) Inventory Prepaid insurance Property and equipment (net) Total assets 494,480 115,808 23,000 990,000 $ 1,701,288 Liabilities and Stockholders' Equity Accounts payable Dividends payable Common stock Retained earnings Total liabilities and stockholders' equity $ 104,000 18,000 880,000 699,288 $ 1,701,288 The company maintains a minimum cash balance of $54,000. 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 $54,000 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. 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 $54,000. 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 Complete this question by entering your answers in the tabs below Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 ales $ 3,043,600 Variable expenses Cost of goods sold 956,560 Commissions 121,744 1,078,304 ontribution margin 1,965,296 Fixed expenses Advertising Rent Salaries Utilities Insurance Depreciation 720,000 66,000 342,000 27,000 10,200 54,000 1,219,200 746,096 (2,220) 743,876 et operating income nterest expense et income Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May June Quarter Beginning cash balance Add collections from customers Total cash available Less cash disbursements $ 78,00054,192 225,624 642,236 984,200 1,222,200 2,828,000 3,470,236 621,600 699,600 1,038,392 1,447,824 Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid 279,560 240,000 22,000 114,000 36,848 9,000 353,320 240,000 22,000 114,000 56,448 9,000 18,000 271,920 240,000 22,000 114,000 28,448 9,000 44,000 904,800 720,000 66,000 342,000 121,744 27,000 62,000 18,000 2,261,544 718,4561,208,692 18,000 719,408 (19,808) 812,768 729,368 Total cash disbursements Excess (deficiency) of cash available over disbursements Financing 225,624 Borrowings Repayments Interest 74,000 (74,000) (2,220) (2,220) $ 54,192 $ 225,624 $ 642,236S1,206,472 74,000 (74,000) (2,220) (76,220) Total financing 74,000 Ending cash balance Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April s 104,000 S May June Quarter Accounts payable April purchases May purchases June purchases Total cash paymentsS 279,560 $ 353,320$ 271,920904,800 0 $ 104,000 0 351,120 177,760 355,520 94,160 175,560 175,560 177,760 94,160 Earrings Unlimited Merchandise Purchases Budget April May June Quarter 217,400 12,320 229,720 26,320 203,400 4.40 $351,120$ 355,520 $188,320 $ 894,960 65,800 40,320 106,120 26,320 79,800 50,800 12,320 63,120 20,320 42,800 4.40 Budgeted unit sales Add: Desired ending merchandise inventory Total needs 100,800 20,320 121,120 40,320 80,800 4.40 ess: Beginning merchandise inventory Required purchases Unit cost Required dollar purchases 4.40 S Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter February sales March sales April sales May sales June sales Total cash collections $ 621,600 $ 984,200 $ 1,222,200$2,828,000 37,520 399,840 184,240 57,120 644,840 282,240 92,120 987,840 142,240 37,520 456,960 921,200 1,270,080 142,240 Req 1A Req 1B Req 1C Req 1D Req 2 Req 3 Req 4 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 ash $ 642,236 Accounts receivable nventory 54,208 repaid insurance roperty and equipment, net Total assets $ 696,444 Liabilities and Stockholders' Equity Accounts payable ividends payable Common stock etained earnings Total liabilities and stockholders' equity K Req 3 Req 4