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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?$15 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)	21,000	June (budget)	51,000
February (actual)	27,000	July (budget)	31,000
March (actual)	41,000	August (budget)	29,000
April (budget)	66,000	September (budget)	26,000
May (budget)	101,000

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 $4.5 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	$	250,000
Rent	$	23,000
Salaries	$	116,000
Utilities	$	9,500
Insurance	$	3,500
Depreciation	$	19,000

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $18,500 in new equipment during May and $45,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $18,750 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	$	79,000
Accounts receivable ($40,500 February sales; $492,000 March sales)		532,500
Inventory		118,800
Prepaid insurance		23,500
Property and equipment (net)		1,000,000
Total assets	$	1,753,800
Liabilities and Stockholders? Equity
Accounts payable	$	105,000
Dividends payable		18,750
Common stock		900,000
Retained earnings		730,050
Total liabilities and stockholders? equity	$	1,753,800

The company maintains a minimum cash balance of $55,000. 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 $55,000 in cash.

\fAnswer EARRINGS UNLIMITED Budgeted Balance Sheet June.30 Assets Cash Accounts receivables Inventory Prepaid Insurance Property and Equipment (net) Total assets Liabilities and Stockholder's Equity Accounts payable Dividends payable Common stock Retained earnings Total liabilities and stockholder's equity 781,730 763,500 55,800 13,000 1,006,500 2,620,530 96,750 18,750 900,000 1,605,030 2,620,530 Workings: Sales Budget April Units Selling Price Sales Revenue $ $ 66,000 15 $ 990,000 $ Cash Collection Budget April For salesof Feb March April May June Totals Accounts Receivable June 30 Unit Sales End. Inventory Total required units Beg Inventory Purchases May 101,000 15 $ 1,515,000 $ May $ $ $ 40,500 430,500 $ 198,000 $ $ $ 669,000 $ June 51,000 15 765,000 June 61,500 693,000 $ 99,000 303,000 $ 1,060,500 $ 153,000 1,057,500 $ 1,312,500 Coat of Goods Sold Budget April May June 66,000 101,000 40,400 20,400 106,400 121,400 26,400 40,400 80,000 81,000 51,000 12,400 63,400 20,400 43,000 Price Purchase in dollars Cost of goods sold $ For March Purchases April purchases May purchases June Purchases Totals Accounts Payable June 30 4.50 $ 360,000 297,000 4.50 193,500 229,500 Cash Payment Budget April May June 105,000 180,000 180,000 182,250 182,250 96,750 285,000 362,250 279,000 Cash Budget April Beginning Balance Collection for sales Total Cash available Disbursements Payment for purchases Commissions Advertising Rent Salaries Utilities Purchase of equipments Dividends Total disbursements Cash excess (deficiency) Minimum cash balance Borrowings (repayment) Interest Ending cash balance May June 79,000 669,000 748,000 55,150 1,057,500 1,112,650 223,800 1,312,500 1,536,300 285,000 39,600 250,000 23,000 116,000 9,500 362,250 60,600 250,000 23,000 116,000 9,500 18,500 279,000 30,600 250,000 23,000 116,000 9,500 45,000 18,750 741,850 6,150 55,000 49,000 839,850 272,800 55,000 55,150 223,800 753,100 783,200 55,000 (49,000) (1,470) 783,200 Income Statement June.30 Sales Revenue Cost of Goods Sold Gross Profits Expenses: Commissions Advertising Rent Salaries Utilities 4.50 $ 364,500 454,500 3,270,000 981,000 2,289,000 130,800 750,000 69,000 348,000 28,500 Insurance Depreciation Interest Total expenses Net income 10,500 57,000 1,470 1,395,270 893,730 Statement of Retained Earnings June.30 Beg. Balance Net Income Dividends End. Balance 730,050 893,730 18,750 1,605,030 Total 3,270,000 Total 763,500 981,000 96,750 Total 79,000 3,039,000 3,118,000 926,250 130,800 750,000 69,000 348,000 28,500 63,500 18,750 2,334,800 783,200 (1,470) 781,730 Answer EARRINGS UNLIMITED Budgeted Balance Sheet June.30 Assets Cash Accounts receivables Inventory Prepaid Insurance Property and Equipment (net) Total assets Liabilities and Stockholder's Equity Accounts payable Dividends payable Common stock Retained earnings Total liabilities and stockholder's equity 781,730 763,500 55,800 13,000 1,006,500 2,620,530 96,750 18,750 900,000 1,605,030 2,620,530 Workings: Sales Budget April Units Selling Price Sales Revenue $ $ 66,000 15 $ 990,000 $ Cash Collection Budget April For salesof Feb March April May June Totals Accounts Receivable June 30 Unit Sales End. Inventory Total required units Beg Inventory Purchases May 101,000 15 $ 1,515,000 $ May $ $ $ 40,500 430,500 $ 198,000 $ $ $ 669,000 $ June 51,000 15 765,000 June 61,500 693,000 $ 99,000 303,000 $ 1,060,500 $ 153,000 1,057,500 $ 1,312,500 Coat of Goods Sold Budget April May June 66,000 101,000 40,400 20,400 106,400 121,400 26,400 40,400 80,000 81,000 51,000 12,400 63,400 20,400 43,000 Price Purchase in dollars Cost of goods sold $ For March Purchases April purchases May purchases June Purchases Totals Accounts Payable June 30 4.50 $ 360,000 297,000 4.50 193,500 229,500 Cash Payment Budget April May June 105,000 180,000 180,000 182,250 182,250 96,750 285,000 362,250 279,000 Cash Budget April Beginning Balance Collection for sales Total Cash available Disbursements Payment for purchases Commissions Advertising Rent Salaries Utilities Purchase of equipments Dividends Total disbursements Cash excess (deficiency) Minimum cash balance Borrowings (repayment) Interest Ending cash balance May June 79,000 669,000 748,000 55,150 1,057,500 1,112,650 223,800 1,312,500 1,536,300 285,000 39,600 250,000 23,000 116,000 9,500 362,250 60,600 250,000 23,000 116,000 9,500 18,500 279,000 30,600 250,000 23,000 116,000 9,500 45,000 18,750 741,850 6,150 55,000 49,000 839,850 272,800 55,000 55,150 223,800 753,100 783,200 55,000 (49,000) (1,470) 783,200 Income Statement June.30 Sales Revenue Cost of Goods Sold Gross Profits Expenses: Commissions Advertising Rent Salaries Utilities 4.50 $ 364,500 454,500 3,270,000 981,000 2,289,000 130,800 750,000 69,000 348,000 28,500 Insurance Depreciation Interest Total expenses Net income 10,500 57,000 1,470 1,395,270 893,730 Statement of Retained Earnings June.30 Beg. Balance Net Income Dividends End. Balance 730,050 893,730 18,750 1,605,030 Total 3,270,000 Total 763,500 981,000 96,750 Total 79,000 3,039,000 3,118,000 926,250 130,800 750,000 69,000 348,000 28,500 63,500 18,750 2,334,800 783,200 (1,470) 781,730