You have just been hired as a new management trainee by Eatrings Unlimited, a distributor of earrings to various zetait outlets located In shopping malis across the country In the past, the company has done very little in the woy 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 budyet for the upcoming second quarter. To this end, you have worked with accounting and other areas io 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 last three months and budgeted sales for the next six momths follow (in poirs of earrings) 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 10 supply 40% of the earrings sold in the following month. Suppliers are pald 5460 for a pair of earrings. One-half of a monti'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 monty's soles are collected in the month of sole. 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 negigible Monthly operating expenses for the company are given below: Iles Insurance is paid on an annual bosis, in November of each year The company plans to purchase $19.000 in new equipment during May and $46,000 in new equipment during June: both purchases will be for cash. The company deciares dividends of $19,500 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: The company's batance sheet as of March 31 is given below The company maintains a minimum cash balance of $56.000. All borrowing is done at the beginning of o month, any repayments are: made at the end of a month The company has an agreement with a bank that allows the compony to borrow in increments of \$1,000 at the beginning of each monh 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 compary would pay the bank all of the accumulated interest on the loan and as much of the loan as possiale in increments of $1,0001. while still retainina at least $56,000 in cash Required: Prepare a master budget for the three-month period ending June 30. Include the foliowing detailed schedules: 1. a. A sales budget, by month and in total. b. A schedule of expected cash collections, by month and in total. c. A merchandise purchases budget in units and in dollars. Show the budget by month and in fotal. 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 maintairi the minimu cash balance of $56,000 3. A budgeted income statement for the three-month period ending June 30 . Use the contcibution approach: 4. A budgeted balance sheet as of June 30
