You have just been hired as a new management trainee by Sarah Jessica Parker 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 a master budget for the upcoming second quarter. 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 lost three months and budgeted sales for the next six months follow (in pairs of earrings): January (actual) February (actual) March (actual) April (budget) May (budget) 23,400 June (budget) 29,480 July (budget) 43,480 August (budget) 68,400 September (budget) 103,400 $3,400 33,400 31,400 28,400 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 poid $5.70 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. 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 Fixed: Advertising Rent Salaries Utilities Insurance Depreciation 44 of sales $ 370,000 $ 35,000 $ 140,000 $ 15,500 $ 4,700 $ 31,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $24,500 in new equipment during May and $57,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $27,750 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: 91,000 Assets Cash Accounts receivable (547,840 February sales; $555,520 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 602,560 155,952 29,500 1,120,000 $ 1,999,012 $ 117,000 27,750 1,140,000 714,262 $ 1,999,012 The company maintains a minimum cash balance of $67,000. 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 $1000), while still retaining at least $67,000 in cash. Prepare a master budget for the three-month period ending June 30 that includes a sales budget, by month and in total. Sales Budget April May June Quarter Budgeted unit sales 68,400 103.400 53,400 225,200 Selling price per unit $ 16 $ 16 $ 16 s 16 3 Total sales 1.094 400 $ 1,654,400 $ 854,400 $ 3,603,200 Reg 18 > Prepare a master budget for the three month period ending June 30 that includes a schedule of expected cash collections, by month and in total February sales March sales April salos May sales June sales Total cash collections Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter $ 47,040 0 0 $ 47,040 486,080 00.4401 0 655,520 218,880 766,080 109.4401 1,004,400 0 330,880 1.158.080 1,488,060 0 0 170.8-80 170,880 5 752,000 s 1.166,400S 1.438.400$ 3,356,800 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 June Quarter Budgeted unit sales 68,400 103.400 53.400 225,200 Add: Desired ending merchandise inventory 41,360 21.360 13,360 13,360 Total needs 109,760 124,760 66,760 238,560 Less: Beginning merchandise inventory 27.360 41,360 21,360 27,360 Required purchases 82,400 83,400 45,400 211,200 Unit Cost $ 5.70 $ 5.70 $ 5.70 $ 5.70 Required dollar purchases $ 469.680 $475,380 $ 258.780 5 1,203,840 Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected cash disbursements for merchandise purchases, by month and in total Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases June Quarter Accounts payable $ 117,000 $ of s o $ 117.000 April purchases 234,840 234 840 0 469,680 May purchases 0 237,690 237,690 475,380 June purchases 0 01 129,390 129.390 Total cash payments $ 351,840 $ 472,530 5 367,080 1,101.450 April May