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-$10 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) 20,000 June (budget) 26,000 July (budget) 40,000 August (budget) 65,000 September (budget) 100,000 50,000 30,000 28,000 25,000 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 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 s 200,000 $ 18,000 106,000 7,000 3,000 14,000 Rent Salaries Utilities Insurance Depreciation Insurance is paid on an annual basis, in November of each year The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 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 $ 74,000 Accounts receivable ($26,000 February sales; $320,000 March sales) Inventory Prepaid insurance 346,000 104,000 21,000 950,000 Property and equipment (net) $1,495,000 Total assets Liabilities and Stockholders' Equity Accounts payable Dividends payable $ 100,000 15,000 800,000 580,000 Common stock Retained earnings 1,495,000 Total liabilities and stockholders' equity The company maintains a minimum cash balance of $50,000. 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 $50,000 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 $50,000. 3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach. 4. A budgeted balance sheet as of June 30 Complete this question by entering your answers in the tabs below. Required 1A Required 1C Required 3Required 4 Required 1B Required 1D Required 2 Prepare a master budget for the three-month period ending June 30 that includes a sales budget, by month and in total Sales Budget May Quarter April June Budgeted unit sales Selling price per unit Total sales Complete this question by entering your answers in the tabs below. Required 1AReqired 1Required 1C Required 1D Required 2 Required 3Required 4 Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected cash collections, by month and in total. Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter February sales 0 March sales 0 April sales May sales 0 June sales Total cash collections$ 0 Required 1A Required 1BRequired 1C Required 1D Required 2Required 3 Required 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. Earrings Unlimited Merchandise Purchases Budget May Quarter April June Budgeted unit sales Total needs 01 Required purchases 0 0 0 Unit cost Required dollar purchases Required 1A Required 1B Required 1C Required 1D Required 2 Required 3Required 4 Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected cash disbursements for merchandise purchases, by month and in total. Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases May June Quarter April Accounts payable April purchases May purchases June purchases Total cash payments 0 0 Required 1A Required 1BRequired 1C Required 1DRequired 2 Required 3 Required 4 Prepare a master budget for the three-month period ending June 30 that includes 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 $50,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Earrings Unlimited Cash Budget For the Three Months Ending June 30 May April June Quarter Beginning cash balance Add collections from customers Total cash available Less cash disbursements Merchandise purchases Advertising Rent 0 Salaries 0 Commissions 0 Utilities 0 Equipment purchases Dividends paid Total cash disbursements 0 0 0 Excess (deficiency) of cash available over disbursements Financing Borrowings Repayments Interest Total financing Ending cash balance Required 1A Required 1B Required 1C Required 1D Required 2Required 3 Required 4 Prepare a master budget for the three-month period ending June 30 that includes a budgeted income statement for the three- month period ending June 30. Use the contribution approach Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Variable expenses: Fixed expenses: 0 0 Required 1A Required 1B Required 1C Required 1D Required 2 Required 3Required 4 Prepare a master budget for the three-month period ending June 30 that includes a budgeted balance sheet as of June 30 Earrings Unlimitec Budgeted Balance Sheet June 3 Assets Total assets Liabilities and Stockholders' Equity Total liabilities and stockholders' equity