You have just been hired as a new management trainee by Eanings 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 benets 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 pricH15 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 {actu al} 2?,0 00 July {budget} 31000 March {actu al} 410 00 August {budget} 20000 April {budget} 55,0 00 September {budget} 25000 May {budget} 101.0 00 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 $4.5 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, 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 T000 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: 'v'ariable: Sales commissions 4% of sales Fixed: Advertising '5 250,000 Rent 55 23,000 Salaries $115,000 Utilities 5 0.500 Insurance $ 3.500 Depreciation iii 19000 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 $18,160 each quarter, payable in the rst month of the following quarter. A listing of the company's ledger accounts as of March 31 is given below: The company plans to purchase $18,500 in new equipment dun'ng May and $45,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $18,?50 each quarter, payable in the rst month of the following quarter. A listing of the company's ledger accounts as of March 31 is given below: Assets l[lash 0 T0000 Accounts receivable {$40,500 Feb mary sales; $492,000 March sales} 532,500 lnve ntory 110,300 Prepaid insurance 23500 Property and equipment {net} 1,000,000 Total assets 0 1,153,500 Liabilities and Stockholders' Equity Accounts payable $ 105,000 Dividends payable 1B,?50 Common stock 900,000 Retained earnings T130050 Total liabilities and stockholders' equity 0 1,753,500 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 banls: 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 $55,000 in cash. Required: 1. Prepare a master budget for the threemonth period ending June 30. Include the following detailed budgets: a. A sales budget, by month and in total. -_- -_-_ __!! h. A schedule at expected cash cellectiens from sales, by manth and in total. Fehru an: sales c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. {Round "Unit east" answers tcr 2 decimal places.] d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. Accounts payable Apnl purchases May purchases Total cash pavm ents 2. 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 [Cash deficiency. repayments and interest should be indicated by a minus sign.} Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Merchandise purchases Advertising Rent Commissions Equipment purchases Dividends paid Total cash disbursements Excess of cash available over disbursements Financing: Borrowings Rep ayme nts Intn met