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 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-$14 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) February (actual). March (actual) April (budget) May (budget) 21,600 June (budget) 27,600 July (budget) 41,600 August (budget) 66,600 101,600 September (budget) 51,600 31,600 29,600 26,600 5 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 $4.80 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 4% of sales $ 280,000 $ 26,000 $ 122,000 $ 11,000 $ 3,800 $ 22,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $20,000 in new equipment during May and $48,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $21,000 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: Assets Cash Accounts receivable ($38,640 February sales; $465,920 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 $ 82,000 504,560 127,872 25,000 1,030,000 $ 1,769,432 $ 108,000 21,000 960,000 680,432 $1,769,432 The company maintains a minimum cash balance of $58,000. 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 $58,000 in cash. Req 1A Req 18 Req 1C Req 1D Req 2 Req 3 Req 4 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 66,600 101,600 51,600 219,800 Add: Desired ending merchandise inventory 40,640 20,640 12,640 12,640 Total needs 107,240 122.240 64,240 232,440 Less: Beginning merchandise inventory 16,640 40,640- 20,640 16,640 Required purchases 90,600 81,600 43,600 215,800 Unit cost $ 4.80 $ 4.80 $ 4.80 $ 4.80 S Required dollar purchases $434,880 $ 391,680 $209,280 1,035,840 Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Req 1D Req 2 Req 3 Req 4 Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected for merchandise purchases, by month and in total. Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June Quarter $ Accounts payable $ 113,280 113,280 April purchases 217,440 217,440 434,880 May purchases 195,840 ( 195,840 ( 391,680 June purchases 104,640 104,640 Total cash payments 1,044,480 330,720 413,280 300,480