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$$$$15$ 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$)21,800$ June $($budget$)51,800$

February $($actual$)27,800$ July $($budget$)31,800$

March $($actual$)41,800$ August $($budget$)29,800$

April $($budget$)66,800$ September $($budget$)26,800$

May $($budget$)101,800$

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 $$4\mathrm{.}90$ for a pair of earrings. One$-$half of a month$$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 $4\%$ of sales

Fixed:

Advertising $ $290,000$

Rent $ $27,000$

Salaries $ $124,000$

Utilities $ $11,500$

Insurance $ $3,900$

Depreciation $ $23,000$

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $$20,500$ in new equipment during May and $$49,000$ in new equipment during June; both purchases will be for cash. The company declares dividends of $$21,750$ 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 $ $83,000$

Accounts receivable $($$$41,700$ February sales; $$501,600$ March sales$)543,300$

Inventory $130,928$

Prepaid insurance $25,500$

Property and equipment $($net$)1,040,000$

Total assets $ $1,822,728$

Liabilities and Stockholders$$ Equity

Accounts payable $ $109,000$

Dividends payable $21,750$

Common stock $980,000$

Retained earnings $711,978$

Total liabilities and stockholders$$ equity $ $1,822,728$

The company maintains a minimum cash balance of $$59,000.$ All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

Please help!

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 $$59,000$ in cash.