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 experienceda 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 of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):

January (actual)20,000 June (budget) .50,000

February (actual)26,000 July (budget)30,000

March (actual). 40,000 August (budget) .28,000

April (budget)65,000 September (budget).25,000

May (budget) .100,000

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 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 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 commissions4% of sales

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 February 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 Accounts payable. . . . . . . $ 100,000 Dividends payable . . . . 15,000 Capital stock . . .. 800,000 Retained earnings . . . . 580,000 Total liabilities and stockholders' equity . . . . $1,495,000