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)	51,200
February (actual)	27,200	July (budget)	31,200
March (actual)	41,200	August (budget)	29,200
April (budget)	66,200	September (budget)	26,200
May (budget)	101,200

The concentration of sales before and during May is due to Mothers 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 months 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 months 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.

Assets
Cash	$	80,000
Accounts receivable ($43,520 February sales; $527,360 March sales)		570,880
Inventory		121,808
Prepaid insurance		24,000
Property and equipment (net)		1,010,000
Total assets	$	1,806,688
Liabilities and Stockholders Equity
Accounts payable	$	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.

1. 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.)

2.A budgeted income statement for the three-month period ending June 30. Use the contribution approach.

3.A budgeted balance sheet as of June 30.