Requirement 2: EARRINGS UNLIMITED Cash Budget For the Three Months Ending June 30 Cash balance, beginning Add receipts from customers Total cash available Less disbursements: Merchandise purchases Advertising Rent Salaries Commissions ( 4% of sales) Utilities Equipment purchases Dividends paid Total disbursements Excess (deficiency) of receipts over disbursements Financing: Borrowings Repayments Interest Total financing Cash balance, ending \begin{tabular}{l} Requirement 1a. Sales budget: \\ Budgeted sales in units \\ Selling price per unit \\ Total sales \\ Requirement 1b. Schedule of expected cash collections: \\ February sales \\ March sales \\ April sales \\ May sales \\ June sales \\ Total cash collections \\ Requirement 1c. Merchandise purchases budget: \\ Budgeted unit sales \\ Add desired ending inventory \\ Total needs \\ Less beginning inventory \\ Required purchases in units \\ Unit cost \\ Required dollar purchases \\ \hline Requirement 1d. Budgeted cash disbursements for merchandise purchases: \\ \hline Accounts payable \\ April purchases \\ May purchases \\ June purchases \\ Total cash disbursements \\ \hline \end{tabular} You have just been Bired as a new management trainee by Earrings Unlimited, a distributor of earrings very liffe in the way of budgeting and at certain times of the yoar has expenenced a shortage of cash. Since you are wel trained in budgeting, you have decided to prepare compretentive budgets for the upcoming second quarter in order lo show management the bervefis that can be gained from an integramed budgeting program. To this end, you have worked with accounting and other aneas to gather the intormation assembled beliow. The company sels many shyles of earrings, but all are sold for the same price- $10 per pair. Actual sales of earings for the last thee months and budgeled sales for the neat six months follow fin pairs of eartingsk. The concentraton of sales before and funing May it doe to Mother's Day. Sutficient inventory ahould be on hand of the end of each month to supply 40% of the earrings sold in the following month, Suppliors are paid 34 for a pair of earrings. One-half of a monti's porchases is paid for in the month of purchase; the othee half is paid for in the following month. All sales are on credi, with no dscoumt, and payatle whin 15 days. The compary has found however, that only 20% of a month's sales are collected in the month of sale. An addiconal 70% is collected in the following month and the nemaining 10% is colected in the secoed monteh folbwing sale. Bad debts have been negleble. Monthly operating expenses for the company are given below. Insurance is paid on as annual basis, in November of each year. The company plans to puichase $16,000 in new squipenent during May and 40,000 in new equicment duning June; both purchases will be for cash. The company declares dividends of $15.000 each quarlet; payable in the first month of the following euarter A listing of the compary/s hodger acoounts as of March 31 is given below: The company maintains a minimum cash balunce of $50,000. Al bonowing is done at the begining of a menthi any repayments are mode at the end of a morth The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of wach moeth. The interest tate on these lowess is 1% per month and for simplicity we wil assume that isterest is not compounded. AL the end of the quarter, the company would pary the bark. all of the sccumulabed inlecest on the loan and as much of the loan as posable (n increments of $1.000d. while stil retaining at least 550.000 in cash. Required: Prepare a master budget for the three-month period ending June 30 . Include the following detailed budgets: 1. a. A sales budget, by month and in total. b. A schedule of expected cash collections from sales, 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 $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 . Requiremeat 3: EARRINGS UNLIMITED Budgeted income Statement For the Three Months Ending June 30 Sales in units Sales Variable expenses: Cost of goods sold Commissions Contribution margin Fixed expenses: Advertising Rent Salaries Utilities Insurance Depreciation Net operating income Less interest expense Net income EARRINGS UNLIMITED Budgeted Balance Sheet June 30 Assets Cash Accounts receivable Inventory Prepaid insurance Property and equipment, net Total assets Liabilties and Equity Accounts payable, purchases Dividends payable Capital stock, no par Retained eamings Total liabilities and equily Accounts receivable at June 30 : May sales June sales Total Retained earnings at June 30: Balance, March 31 Add net income Total Less dividends declared Balance, June 30