You have just been contracted as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets 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 belovw The company sells many styles of earrings, but all are sold for the same price -$10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow 20,000 26,000 40,000 65,000 100,000 50,000 30,000 28,000 25,000 January (actual) February (actual) March (actual) April (budget) May (budget) June (budget) July (budget August (budget) September (budget) 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 bracelets sold in the following month Suppliers are paid $4 for each bracelet. 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 discounts. 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 expenses: Sales commissions 4% of sales Fixed expenses Advertising $200,000 $18,000 $106,000 7,000 $3,000 $14,000 Rent Salaries Utilities Insurance Depreciation Insurance is paid on an annual basis, in November of each year The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June, both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter Other relevant data is given below Cash balance as of March 31 Inventory balance as of March 31 Merchandise purchases for March $74,000 $104,000 $200,000 The company maintains a minimum cash balance of at least $50,000 at the end of each month. Al the end of a month. Il borrowing is done at the beginning of a month, any repayments are made at The companyhas an agreement with a bank that allows the company to borrow the exact amountneeded 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 will pay the bank all of the accrued interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash. Required Prepare a cash 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 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. SALES BUDGET: June Apri May Budgeted unit sales 3 Selling price per unit 9 Total sales 12 SCHEDULE OF EXPECTED CASH COLLECTIONS: 13 April May June Quarter 14 February Sales 15 March Sales 16 April Sales 17 May Sales 18 June Sales 19 Total cash collections 20 21 check $1,99 22 MERCHANDISE PURCHASES BUDGET: Apri May June Quarter 23 24 Budgeted unit sales 25 Add desired ending inventory 26 Total needs 27 Less beginning inventory 28 Required purchases 29 Cost of purchases $4 per unit 30 31 32 BUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES: April May June Quarter 34 March Purchases 35 April Purchases 36 May Purchases 37 June Purchases 38 Total cash payments 39 40 41 FARRINGS IN TE EARRINGS UNLIMITED CASH BUDGET FOR THE 3 MONTHS ENDING JUNE 30 April May Quarter June Cash balance Add collections from customers Total cash available Less disbursements Merchandise purchases Advertising 2Rent 3 Salaries 4 Commissions 5 Utilities 6 Equipment purchases 57 Dividends paid 58 Total disbursements 59 60 Excess (deficiency) of receipts 61 over disbursements 62 Financing 63 Borrowings 64 Repayments 65 Interest 66 Total financing 67 68 Cash balance, ending 69 70 71 72