You have just been hired as a new management trainee by xxx Company, 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-~$15 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) 21,000 June (budget)

51,000

February (actual) 27,000 July (budget)

31.000

March (actual)

41,000 August (budget)

29.000

April (budget)

66,000 September (budget) 26,000

May (budget)

101.000

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 $4.50 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

4% of sales

Insurance

Depreciation

$ 250,000

$ 23.000

$ 116,000

$ 9.500

$ 3,500

$ 19.000

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $18,500 in new equipment during May and $45,000 in new

equipment during June; both purchases will be for cash. The company declares dividends of

$18,750 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 ($40,500 February sales; $492,000 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

$ 79.000

532.500

118,800

23,500

1.000.000

$ 1.753,800

$ 105.000

18.750

900.000

730.050

$ 1.753.800

The company maintains a minimum cash balance of $55,000. 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 S1,000 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 S$5,000 in cash.

Required:

You are required to prepare a master budget in excel file for the three-month period ending

June 30. Include the following detailed:

1.A sales budget, by month and in total.

2.A schedule of expected cash collections, by month and in total.

3.

A merchandise purchases budget in units and in dollars. Show the budget by month and in

total.

4. A schedule of expected cash disbursements for merchandise purchases, by month and in

total.

5.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 $55,000.

6.A budgeted income statement for the three-month period ending June 30. Use the

contribution approach.

7.A budgeted balance sheet as of June 30.