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 comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program.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$10 per pair.Actual sales or earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings) January(actual) 20,000 February(actual) 26,000 March(actual) 40,000 April(budget) 65,000 May(budget) 100,000 June(budget) 50,000 July(budget) 30,000 August(budget) 28,000 September(budget) 25,000 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 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 credit,with no discount and payable within 15 days.The company has found ,however,that 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 remaing 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 4% Fixed: Advertising $200,000 Rent $18,000 Salaries $106,000 Utilities $7,000 Insurance $3,000 Depreciation $14,000 Insurance is paid on an annual basis in November of each year. The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June,both purchases will be for cash.The company declares dividends of $15,000 each quarter,payable in the first month of the following quarter. A listing of the company's ledger accounts as of March 31 is given below Assets Cash $74,000 Accounts receivable($26,000 sales; $320,000 March sales) $346,000 Inventory $104,000 Prepaid Insurance 21,000 Property and equipment(net) 950,000 Total assets $1,495,000 Liabilities and Stockholders' Equity Account payable $ 100,000 Dividends pyable 15,000 Capital Stock 800,000 Retained earnings 540,000 Total liabilities and stockholders $1,495,000 The company maintains a minimum cash balance of $50,000.All borrowing is done at the beginining of the 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 begining 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 loan and as much of the loan as possible(in increment of $1,000) while still retaining at least $50,000 in cash Required: Prepare a master budget for the three month ending June 30.Include the following detailed budgets: 1.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 moth 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 June 30 Take Note: you are to use microsoft excel and show computation at various stages of budgeting.The format is given below please take note. SALES BUDGET: April May June Quarter Budgeted unit sales Selling price per unit Total Sales SCHEDULE OF EXPECTED CASH COLLECTIONS: April May June Quarter February sales March sales April sales May sales June sales Total Cash Collections MERCHANDISE PURCHASES BUDGET: April May June Quarter Budgeted unit sales Add desired ending inventory Total needs Less beginning inventory Required purchases Cost of purchases @ $4 per unit BUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES: April May June Quarter Accounts payable April purchases May purchases June purchases Total cash payments EARRINGS UNLIMITED CASH BUDGET FOR THE THREE MONTHS ENDING JUNE 30 April May June Quarter Cash balance Add collections from customers Total cash available Less Disbursements Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid Total Disbursements Excess (deficiency) of receipts over disbursements Financing: Borrowings Repayments Interest Total financing Cash balance, ending EARRINGS UNLIMITED BUDGETED INCOME STATEMENT FOR THE THREE MONTHS ENDED JUNE 30 Sales - Variable expenses: Cost of goods sold - Commissions - - Contribution Margin - Fixed expenses: Advertising - Rent - Salaries - Utilities - Insurance - Depreciation - - Net operating income - Interest expense - Net income - EARRINGS UNLIMITED BUDGETED BALANCE SHEET JUNE 30 Assets: Cash Accounts receivable (see below) Inventory Prepaid insurance Property and equipment, net Total assets Liabilities and Stockholders' Equity Accounts payable, purchases Dividends payable Capital stock Retained earnings (see below) Total liabilities and stockholders' equity Accounts receivable at June 30: May sales x ?% June sales x ?% Total Retained earnings at June 30: Balance, March 31 Add net income Total Less dividends declared Balance, June 30

PROJECT A - Case 9-30 Student Name: SALES BUDGET: April May June Quarter June Quarter June Quarter Budgeted unit sales Selling price per unit Total Sales SCHEDULE OF EXPECTED CASH COLLECTIONS: April May February sales March sales April sales May sales June sales Total Cash Collections MERCHANDISE PURCHASES BUDGET: April Budgeted unit sales Add desired ending inventory Total needs Less beginning inventory Required purchases Cost of purchases @ $4 per unit May BUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES: April May June Quarter Accounts payable April purchases May purchases June purchases Total cash payments EARRINGS UNLIMITED CASH BUDGET FOR THE THREE MONTHS ENDING JUNE 30 April May June Quarter Cash balance Add collections from customers Total cash available Less Disbursements Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid Total Disbursements Excess (deficiency) of receipts over disbursements Financing: Borrowings Repayments Interest Total financing Cash balance, ending EARRINGS UNLIMITED BUDGETED INCOME STATEMENT FOR THE THREE MONTHS ENDED JUNE 30 - Sales Variable expenses: Cost of goods sold Commissions Contribution Margin Fixed expenses: Advertising Rent Salaries Utilities Insurance Depreciation Net operating income Interest expense Net income - EARRINGS UNLIMITED BUDGETED BALANCE SHEET JUNE 30 Assets: Cash Accounts receivable (see below) Inventory Prepaid insurance Property and equipment, net Total assets Liabilities and Stockholders' Equity Accounts payable, purchases Dividends payable Capital stock Retained earnings (see below) Total liabilities and stockholders' equity Accounts receivable at June 30: May sales x ?% June sales x ?% Total Retained earnings at June 30: Balance, March 31 Add net income Total Less dividends declared Balance, June 30