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. Because 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$11 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)	20,200	June (budget)	50,200
February (actual)	26,200	July (budget)	30,200
March (actual)	40,200	August (budget)	28,200
April (budget)	65,200	September (budget)	25,200
May (budget)	100,200

The concentration of sales before and during May is due to Mothers 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 $4.10 for a pair of earrings. One-half of a months 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 months sales are collected in the month of sale. An additional 70% are collected in the following month, and the remaining 10% are 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	$ 210,000
Rent	$ 19,000
Salaries	$ 108,000
Utilities	$ 7,500
Insurance	$ 3,100
Depreciation	$ 15,000

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

The company plans to purchase $16,500 in new equipment during May and $41,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,750 each quarter, payable in the first month of the following quarter.

The companys balance sheet as of March 31 is given below:

Assets
Cash	$ 75,000
Accounts receivable ($28,820 February sales; $353,760 March sales)	382,580
Inventory	106,928
Prepaid insurance	21,500
Property and equipment (net)	960,000
Total assets	$ 1,546,008
Liabilities and Stockholders Equity
Accounts payable	$ 101,000
Dividends payable	15,750
Common stock	820,000
Retained earnings	609,258
Total liabilities and stockholders equity	$ 1,546,008

The company maintains a minimum cash balance of $51,000. 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 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 $51,000 in cash.

Required:

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

1. 1. A sales budget, by month and in total.
   2. A schedule of expected cash collections, by month and in total.
   3. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
   4. 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 $51,000.
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.

Use these numbers to start, there is a (1,000) deduction off each one.

Remember the unit price is $11.00. Follow this start and flow. Suppliers are paid $4.10 per earring. Please use the numbers above.

Req 1a. Sales Budget

	Sales Budget
	April	May	June	Quarter
Budgeted Unit Sales	$65,200	$100,200	$50,200	$215,600
Multiply by selling price per unit	$11.00	$11.00	$11.00	$11.00
Total Sales	$717,200	$1,102,200	$552,200	$2,371,600

Req 1b. Schedule of Expected Cash Collection- Chart

Req 2: Cash Budget

Cash Budget
	April	May	June	Quarter
Beginning Cash Balance
Add: Cash collection from customer
Total cash available
Less: Disbursement
Merchandise Purchase
Commission (Sales *4%)
Advertising
Rent
Salaries
Utilities
Equipment and Purchases
Dividends
Total cash disbursement	$	$	$	$
Excess or (Deficiency) of cash available over disbursement		$
Financing:
Borrowings (Note 1)		-
Repayments (Note1)		-
Interest (Note 1)		-
Total Financing		-
Ending cash balance	$	$	$	$

Note 1: Working for borrowing/Repayment

	April	May	June	Total
Preliminary Cash balance
Minimum cash balance required
Is cash available is more than minimum required
Is Borrowing Required
Borrowing amount(Minimum + deficiency)		-	-
Multiplied by Months Due
Multiplied by Rate of interest
Interest Expense	$	-	-	$

Step 3/3

Req-3: Income Statement

Income Statement
Sales
Variable Expense:
Merchandise Purchase			(
Commission (Sales *4%)
Total Variable expense		$
Contribution Margin		$
Fixed Expenses:
Advertising
Rent
Salaries
Utilities
Insurance			()
Depreciation			(
Total Fixed Expenses
Net Operating Income		$
Less: Interest Expense		$
Net Income		$

Req 4: Balance Sheet

Balance Sheet
Assets
Cash
Accounts Receivable
Insurance		(
Merchandise Inventory		(
Property Plant and Equipment, Net
Total Assets
Liabilities and Equity
Accounts Payable
Dividend Payable
Common Stock
Retained Earnings (Opening + Net Income - Dividend)		(
Total Liability and Equity	$		-

Final answer

Ending cash balance as per cash budget is $