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) 21,600 June (budget) 51,600 February (actual) 27,600 July (budget) 31,600 March (actual) 41,600 August (budget) 29,600 April (budget) May (budget) 66,600 101,600 September (budget) 26,600 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 82,000 504,560 127,872 25,000 1,030,000 $ 1,769,432 Accounts payable Dividends payable $ 108,000 21,000 Common stock Retained earnings Total liabilities and stockholders' equity 960,000 680,432 $ 1,769,432