You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retall

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 tralined 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 palr. Actual sales of earrings for

the last three months and budgeted sales for the next slx months follow $($In pairs of earrings$)$:

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.

Suppllers are pald $$4\mathrm{.}40$ for a pair of earrings. One$-$half of a month's purchases is paid for in the month of purchase; the

other half is pald 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:

Insurance is pald on an annual basis, In November of each year.

The company plans to purchase $$18,000$ in new equipment during May and $$44,000$ in new equipment during June;

both purchases will be for cash. The company declares dlvidends of $$18,000$ each quarter, payable in the first month of

the following quarter.

The company's balance sheet as of March $31$ is given below:

The company maintains a minimum cash balance of $$54,000.$ 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 $$1,000),$ while still retalining at least $$54,000$ in cash.

Required:

Prepare a master budget for the three$-$month period ending June $30.$ Include the following detalled schedules:

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.

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 $$54,000.$

A budgeted Income statement for the three$-$month period ending June $30.$ Use the contribution approach.

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