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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 comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. 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?$16 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)21,200June (budget)51,200February (actual)27,200July (budget)31,200March (actual)41,200August (budget)29,200April (budget)66,200September (budget)26,200May (budget)101,200

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 $4.6 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, with no discount, and payable within 15 days. The company has found, however, that 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:

Variable:Sales commissions4%of salesFixed:Advertising$260,000Rent$24,000Salaries$118,000Utilities$10,000Insurance$3,600Depreciation$20,000

Insurance is paid on an annual basis, in November of each year.The company plans to purchase $19,000 in new equipment during May and $46,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $19,500 each quarter, payable in the first month of the following quarter.

A listing of the company's ledger accounts as of March 31 is given below:

AssetsCash$80,000Accounts receivable ($43,520 February sales;$527,360 March sales)570,880Inventory121,808Prepaid insurance24,000Property and equipment (net)1,010,000Total assets$1,806,688Liabilities and Stockholders' EquityAccounts payable$106,000Dividends payable19,500Common stock920,000Retained earnings761,188Total liabilities and stockholders' equity$1,806,688

The company maintains a minimum cash balance of $56,000. 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 $56,000 in cash.

complete a master budget for the three-month period ending June 30. Include the following detailed budgets:

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.(Round "Unit cost" answers to 2 decimal places.)

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 $56,000(Cash deficiency, repayments and interest should be indicated by a minus sign.)

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.

. . I W09 Application Problem: Cha x W09 Application Problem: Cha x Course Hero x + > C A ezto.mheducation.com/hm.tpx?_=0.9174244758115166_1592188154162 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 comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. 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-$16 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) 21,200 June (budget) 1,200 February (actual) 31,200 March (actual) 27,200 July (budget) 41,200 August (budget) 29,20 April (budget) 26,200 May (budget) 66,200 September (budget) 101,200 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 $4.6 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, with no discount, and payable within 15 days. The company has found, however, that 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: Variable: Sales commissions 4% of sales Fixed: Advertising $ 260,000 Rent $ 24,000 Salaries $ 118,000 Utilities $ 10,000 Insurance $ 3,600 Depreciation $ 20,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $19,000 in new equipment during May and $46,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $19,500 each quarter, payable in the first month of the following quarter. A listing of the company's ledger accounts as of March 31 is given below: Assets Cash $ 80,000 Accounts receivable ($43,520 February sales; $527,360 March sales) 570,880 Inventory 21,808 Prepaid insurance 24,000 Property and equipment (net) 1,010,000 Total assets $ 1,806,688. . 1 W09 Application Problem: Cha x W09 Application Problem: Cha X Course Hero x + -> C A ezto.mheducation.com/hm.tpx?_=0.9174244758115166_1592188154162 Accounts payable Liabilities and Stockholders' Equity $ 106,000 Dividends payable 19,500 Common stock 920,000 Retained earnings 761,188 Total liabilities and stockholders' equity $ 1,806,688 The company maintains a minimum cash balance of $56,000. 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 $56,000 in cash. Required: 1. Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets a. A sales budget, by month and in total. Earrings Unlimited Sales Budget April May June Quarter Budgeted unit sales Selling price per unit Total sales b. A schedule of expected cash collections from sales, by month and in total. Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter February sales March sales April sales May sales June sales Total cash collections. . I W09 Application Problem: Cha x W09 Application Problem: Cha x Course Hero x + C A ezto.mheducation.com/hm.tpx?_=0.9174244758115166_1592188154162 c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. (Round "Unit cost" answers to 2 decimal places.) Earrings Unlimited Merchandise Purchases Budget April May June Quater Budgeted unit sales Total needs Required purchases Unit cost Required dollar purchases d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June Quarter Accounts payable April purchases May purchases June purchases Total cash payments 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 $56,000 (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 June Quarter Beginning cash balance Add collections from customers Total cash available. . W09 Application Problem: Cha x W09 Application Problem: Cha X Course Hero x + C A ezto.mheducation.com/hm.tpx?_=0.9174244758115166_1592188154162 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 $56,000 (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 June Quarter Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid Total cash disbursements Excess of cash available over disbursements Financing Borrowings Repayments Interest Total financing Ending cash balance 3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Variable expenses. . ) W09 Application Problem: Cha x W09 Application Problem: Cha X Course Hero x + C A ezto.mheducation.com/hm.tpx?_=0.9174244758115166_1592188154162 3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach. Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Variable expenses Fixed expenses: 4. A budgeted balance sheet as of June 30. Earrings Unlimited Budgeted Balance Sheet June 30 Assets. W09 Application Problem: Cha x W09 Application Problem: Cha X Course Hero x + C A ezto.mheducation.com/hm.tpx?_=0.9174244758115166_1592188154162 4. A budgeted balance sheet as of June 30. Earrings Unlimited Budgeted Balance Sheet June 30 Assets Total assets Liabilities and Stockholders' Equity Total liabilities and stockholders' equity References eBook & Resources Expanded table Learning Objective: 07-04 Prepare a direct materials budget, Learning Objective: 07-10 Prepare a budgeted balance sheet. including a schedule of expected cash disbursements for purchases of materials. Difficulty: 1 Easy Learning Objective: 07-08 Prepare a cash budget. Learning Objective: 07-02 Prepare a sales budget, Learning Objective: 07-09 Prepare a budgeted income statement. including a schedule of expected cash collections. Check my work