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You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the inform below. The company sells many styles of earrings, but all are sold for the same price-$15 per pair. Actual sales of earrin months and budgeted sales for the next six months follow (in pairs of earrings): January (actual) February (actual) March (actual) April (budget) May (budget) 22,200 28,200 42,200 67,200 102,200 June (budget) July (budget) August (budget) September (budget) 52,200 32,200 30,200 27,200 The concentration of sales before and during May is due to Mother's Day. Sufficient inventory should be on hand month to supply 40% of the earrings sold in the following month. Suppliers are paid $5.10 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchas paid for in the following month. All sales are on credit. Only 20% of a month's sales are collected in the month of 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. B negligible. Monthly operating expenses for the company are given below: 4% of sales Variable: Sales commissions Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $ 310,000 $ 29,000 $ 128,000 $ 12,500 $ 4,100 $ 25,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $21,500 in new equipment during May and $51,000 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: $ 85,000 Assets Cash Accounts receivable ($42,300 February sales; $506,400 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 548,700 137,088 26,500 1,060,000 $ 1,857,288 $ 111,000 23,250 1,020,000 703,038 $ 1,857,288 The company maintains a minimum cash balance of $61,000. 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 $61,000 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 $61,000. 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 merchandise purchases budget in units and in dollars. Show the budget by month and in total. (Round unit cost to 2 decimal places.) Earrings Unlimited Merchandise Purchases Budget April May Budgeted unit sales 67,200 102,200 Add: Desired ending merchandise inventory 40,880 20,880 Total needs 108,080 123,080 Less: Beginning merchandise inventory 26,880 40,880 Required purchases 81,200 82,200 Unit cost $ 5.10 $ 5.10 Required dollar purchases $ 414.120 $ 419,220 June 52,200 12,880 65,080 20,880 44,200 5.10 Quarter 221,600 74,640 X 296,240 88,640 207,600 $ 5.10 $ $ 225,420 1 058.760 Prepare a master budget for the three-month period ending June 30 that includes 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 $61,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.). Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May $ 85,000 $ 61,870 687,000 1,075,500 772,000 1,137,370 June $ 61,360 1,330,500 1,391,860 Quarter $ 85,000 3,093,000 3,178,000 Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Merchandise purchases Advertising Rent 318,060 310,000 29,000 128,000 40,320 12,500 416,670 310,000 29,000 128,000 61,320 12,500 322,320 310,000 29,000 128,000 31,320 12,500 1,057,050 930,000 87,000 384,000 132,960 37,500 | Salaries Commissions Utilities Equipment purchases Dividends paid Total cash disbursements Excess (deficiency) of cash available over disbursements Financing Borrowings Repayments Interest Total financing Ending cash balance 23,250 861,130 (89,130) 957,490 179,880 8 33,140 558,720 23,250 2,651,760 526,240 151,000 | 151,000 0 0 151,000 $ 61,870 0 00 0 0 x 0 $ 179,880 $ 558,720 0 151,000 $ 375,240 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. ment Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Sales Variable expenses: Cost of goods sold $1,130,160 Commissions 132,960 $3,324,000 1,263,120 2,060,880 Contribution margin Fixed expenses: Advertising Rent Salaries Utilities 930,000 87,000 384,000 37,500 12,300 Insurance 75,000 Depreciation Net operating income Interest expense Net income 1,525,800 535,080 537 X $ 534,543 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 Accounts receivable Inventory Prepaid insurance $ 85,000 X 779,700 65,688 14,200 Total assets $ 944,588 Liabilities and Stockholders' Equity Accounts payable $ 112,710 Common stock 1,020,000 Retained earnings 703,038 % Total liabilities and stockholders' equity 1.835.748