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) February (actual) March (actual) April (budget) May (budget) 21,600 June (budget) 27,600 July (budget) 41,600 August (budget) 66,600 September (budget) 101,600 51,600 31,600 29,600 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 Accounts payable Dividends payable Common stock Retained earnings Total liabilities and stockholders' equity $ 82,000 504,560 127,872 25, eee 1,030, eee $ 1,769,432 $ 188,000 21,800 960,000 680, 432 $ 1,769,432 The company maintains a minimum cash balance of $58,000. 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 $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 $58,000 in cash. Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules: 1. a. A sales budget, by month and in total. b. A schedule of expected cash collections, 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 month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $58,000. 3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach. 4. A budgeted balance sheet as of June 30. Check my work mode : This shows what is correct or incorrect for the work you have completed so far. It does not indicate completi Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 1C Req 1D Reg 2 Reg 3 Reg 4 Prepare a master budget for the three-month period ending June 30 that includes a merchandise purchases budget in units and in dollars. Show the budget by month and in total. (Round unit cost to 2 decimal places.) Earrings Unlimited Merchandise Purchases Budget April May June Quarter Budgeted unit sales 66,600 101,600 51,600 219,800 Add: Desired ending merchandise inventory 40,640 20,640 12,640 73,920 Total needs 107,240 122,240 64 240 293,720 Less: Beginning merchandise inventory 26,640 40,640 20,640 87,920 X Required purchases 80,600 81,600 43.epp 205,800 $ 4.80$ 4.80 $ Unit cost 4.80 $ 4.80 $ 386,880 $ 391,680 $ 209,280 $ 987,840 Required dollar purchases Prev Next 6 of 6 deficiency, repayments and Interest should be indicated by a minus sign.) Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May June Beginning cash balance Quarter $ 82,000 $ 58,064 $ 148,288 Add collections from customers $ 82,000 632,800 995,400 1,233,400 2,861,600 Total cash available 714,800 1,053,464 1,381,688 2,943,600 Less cash disbursements: Merchandise purchases 301.440 389,280 300,480 991,200 Advertising 280,000 280,000 280,000 840,000 Rent 26,000 26,000+ 26,000 78,000 Salaries 122,000 122,000 122,000 366,000 Commissions 37,296 56,896 28,896 123,088 Utilities 11,000 11,000 11,000 33,000 Equipment purchases 20,000 48,000 68,000 Dividends paid 21,000 21,000 Total cash disbursements 798,736 905,176 816,376 2,520,288 Excess (deficiency) of cash available over disbursements (83,936) 148,288 565,312 423,312 Financing 142,000 0 0 142.000 Borrowings 0 0 (142,000) (142,000) Repayments 0 0 (4,246) (4.246) Interest 142,000 0 (146,246) (4,246) Total financing $ 58,064 $ 148,288 $ 419,066 $ 419,066 Ending cash balance Prev Next 6 of 6 deficiency, repayments and Interest should be indicated by a minus sign.) Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May June Beginning cash balance Quarter $ 82,000 $ 58,064 $ 148,288 Add collections from customers $ 82,000 632,800 995,400 1,233,400 2,861,600 Total cash available 714,800 1,053,464 1,381,688 2,943,600 Less cash disbursements: Merchandise purchases 301.440 389,280 300,480 991,200 Advertising 280,000 280,000 280,000 840,000 Rent 26,000 26,000+ 26,000 78,000 Salaries 122,000 122,000 122,000 366,000 Commissions 37,296 56,896 28,896 123,088 Utilities 11,000 11,000 11,000 33,000 Equipment purchases 20,000 48,000 68,000 Dividends paid 21,000 21,000 Total cash disbursements 798,736 905,176 816,376 2,520,288 Excess (deficiency) of cash available over disbursements (83,936) 148,288 565,312 423,312 Financing 142,000 0 0 142.000 Borrowings 0 0 (142,000) (142,000) Repayments 0 0 (4,246) (4.246) Interest 142,000 0 (146,246) (4,246) Total financing $ 58,064 $ 148,288 $ 419,066 $ 419,066 Ending cash balance