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-$17 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) 23,602 29,600 43,602 68,609 103,600 June (budget) July (budget) August (budget) September (budget) 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 $5.80 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 4% of sales Variable: Sales commissions Fixed: Advertising Rent Salaries 380.eee 36. ee $ 142,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $25,000 in new equipment during May and $58,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $28.500 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: 159.152 3.000 Assets Cash Accounts receivable (550,320 February sales; $592,960 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 1,138,eee $ 2,054,432 118,000 28,500 1,160,000 747,932 2,054,432 The company maintains a minimum cash balance of $68,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month. onth. 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 $68,000 in cash. Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules 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 $68,000. 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. Prepare a master budget for the three-month period ending June 30 that includes a sales budget, by Sales Budget April May 68,600 103,600 17 $ 17 Budgeted unit sales Selling price per unit June 53,600 S 17 Quarter 225,800 $ 17 Total sales 1,166,200 1,761,200 911,200 3,838,600 Prepare a master budget for the three-month period ending June 30 that includes a schedu month and in total. February sales March sales April sales May sales June sales Total cash collections Earrings Unlimited Schedule of Expected Cash Collections April May June $ 50,320 0 0 518,840 74,120 0 233,240 816,340 116,620 oo 352,240 1,232,840 0 00 182,240 $ 802,400 $ 1,242,700 S 1,531,700 Quarter $ 50,320 592,960 1,166,200 1,585,080 182,240 S 3,576,800 Prepare a master budget for the three-month period ending June 30 that includes a merchandise purch 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 Budgeted unit sales 68,600 103,600 Add: Desired ending merchandise inventory 41,440 21,440 Total needs | 110,040 125,040 Less: Beginning merchandise inventory 27,440 41,440 Required purchases 82,600 83,600 Unit cost $ 5.80 $ 5.80 Required dollar purchases $ 479,080 $ 484,880 June 53,600 13,440 67,040 21,440 45,600 5.80 Quarter 225,800 76,320 302,120 0 X 302,120 $ 5.80 $ S 264,480 1.752.296 Prepare a master budget for the three-month period ending June 30 that inclu for merchandise purchases, by month and in total. Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June Quarter Accounts payable 118.000 $ 0 0 s 118,000 April purchases 239,540 239,540 0 479,080 May purchases 242,440 242,440 484,880 June purchases 0 0 132,240 132,240 Total cash payments 357,540 481,980 374 680 |1,214,200 Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May $ 92,000 $ 68,712S 802,400 1,242,700 894,400 1,311,412 Quarter June 159,984 1,531,700 1,691,684 1,309,640 X 1,309,640 Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Merchandise purchases Advertising Rent Salaries 357,546 380,000 36,000 142,000 46,648 16,000 0 28,500 1,006,688 (112,288) 481,980 380,000 36,000 142,000 70,448 16,000 2 5,000 00 1,151,428 159,984 374,680 380,000 36,000 142,000 36,448 16,000 58,000 0 1,043,128 648,556 1,214,200 1,140,000 108,000 426,000 153,544 48,000 83,000 28,500 3,201,244 (1,891,604) Commissions Utilities Equipment purchases Dividends paid Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Total financing Ending cash balance 181,000 0 o 181,000 68,712 0 00 0 O 0 181,000 3,620 X 184,620 181,000 181,000 3,620 365,620 $ 159,984 S 463,936 (2,257,224) Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Sales Variable expenses: Commissions 153,544 $3,838,600 Cost of goods sold 153,544 3,685,056 Fixed expenses: Advertising Rent Salaries Utilities Insurance Depreciation 1,140,000 108,000 426,000 48,000 48,000 83,000 1,853,000 1,832,056 1,832,056 Net income Earrings Unlimited Budgeted Balance Sheet June 30 Assets Cash Accounts receivable Inventory Prepaid insurance Property and equipment, net 0 Total assets $ Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity