You have just been hinod as a new management trainee by Earings Unimited, a dabrbulor of eavings to various retal oublets located in shopping malls acososs the courty. In Ee past, the compary has done very intle in the way of budgeting and at certain tines of the year has expersenced a shortage of cash. Since you are well trained in budgeting. you heve cecided to phepare comerehersive budgets for the upcoming stcoed quarter in order to thow management the bencfes bat can be gained from an integrated bubgeting program. To tis end you have worked wh acoounting and other areas to gather the intormation assemblod below. The company sets many styles of eamngs, but all uve sold for the same price-\$10 per paic Actual sales of earrings for the lass three monhs and budgeted sales for the next six months follow in pairs of earrings): The concentration of sales betare and buring Moy is dae to Mother's Day, Sufficiert invertary ahould be on hand at the end of each month to supply 40% of the earrings sold in the tollowing month. Supplers are paid 54 for a pair of earings. Ond-hat of a moech's purchases is paid for in the month of pucchase; the other hat is pald for in the following month. Ali sales are on crede, with no disoount and payable within 15 days. The company has fourd, however, that only 20% of a month's sales ane 10t/ is collected in the second morth following sale. Bed debts have been negligele. Monthly operating expenses for the company are glven below: Insurance is paid on an antual basis, in Nevnmber of each year. The compary plans to purchase $16.000 in new equipment during May and $40.000 in new equigment during June; bod purchases wil be for cash. The compary declares dividends of $15.000 wach quarter. payatle in the fint menth of the folowing gaarter. A lasing of the companys ledger accounts as of Mavch 31 is given below: The compary maintains a minimum cash balance of $50,000. Ar berrowing is dore at the beginning of a month; any repayments ane made at the ond of a month. The company has an agreement with a benk that alows the company to borrow in increments of $1,000 at the begining of each moeth. The imerest rabe on these loans is 1% per month and for sinpicily we will assume that interest is not compoonded. As the end of the quarter, the company would pay the bank al of the accumulabed interest on the loas and as much of the loan as possible in incremetrs of $1,000). While sat retaining iease $50,000 in cash. Required: Prepare a master budget for the three-month period ending June 30 . Include the following detailed budgets: 1. 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. 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
