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) 23,600 June (budget) 53,600 February (actual) 29,600 July (budget) 13,600 March (actual) 43,600 August (budget) 31,600 April (budget) 69,600 September (budget) 20,600 May (budget) 103,600 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 carrings 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: Variable: Sales comissions Pixed: Advertising Rent Salaries Utilities Insurance Depreciation 41 of sales $ 380,000 $ 36,000 $ 142,000 $ 16,000 $ 4,800 $ 32,000 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: Assets Cash $ 92,000 Accounts receivable ($50,320 February sales: $592,960 March sales) 643,280 Inventory 159,152 Prepaid insurance 30,000 Property and equipment (net) 1,130,000 Total assets $ 2,054, 432 Liabilities and Stockholders' Equity Accounts payablo 5 118,000 Dividends payable 28,500 Common stock 1,160,000 Retained earnings 747,932 Total liabilities and stockholders' equity $ 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. 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: 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 woult 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, Req 1A Reg 1B Req 1C Req 1D Reg 2 Reg 3 Reg 4 Prepare a master budget for the three-month period ending June 30 that includes a sales budget, by month and in total. Sales Budget April May Juno Quarter Budgeted unit sales 68,600 103,600 53,600 225,800 Selling price per unit $ 171 $ 175 17 $ 17 Total sales $ 1.166,200 $ 1.761.2005 911,200 $ 3,838,600 3 Reg 14 Req 18 > Reg 1A Reg 1B Reg 1C Req 1D Reg 2 Reg 3 Reg 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. February sales March sales April sales May sales June sales Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter $ 50,320 $ 50,320 518,840 74,120 592.960 233.240 816,340 116.620 1,166,200 352,240 1,232,840 1,585,080 182.240 182,240 $ 802.400 $ 1,242,700 $ 1,531,700 $ 3,576,800 Total cash collections Reg 1A Req 1B Reg 1C Reg 1D Reg 2 Reg 4 Reg 3 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. (Round unit cost to 2 decimal places.) Earrings Unlimited Merchandise Purchases Budget April May June Quarter Budgeted unit sales 68,600 103,600 53,600 225,800 'Add: Desired onding merchandise inventory 41,440 21.4401 13,440 13.440 Total needs 110.040 125,040 67,040 239,240 Less: Beginning merchandise inventory 27440 41,440 21,440 27.440 Required purchases 82,600 83,600 45,600 211,800 Unit cost $ 5.80 $ 5.80 $ 5.80 $ 5.80 Required dollar purchases $ 479,080 $ 484,880 $ 264,480 5 1,228.440 (Reg 18 Reg 10 > De 1 of 4 18 Next > Reg 1A Reg 1B Reg 10 Reg 1D Reg 2 Req3 Reg 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 April May June Quarter Accounts payable $ 0 April purchases May purchases 0 June purchases 0 Total cash payments $ $ 0 $ 0 0 0 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 0 0 Fixed expenses: Prey 1 of 4 Next > BE Budgeted Balance Sheet June 30 Assets Cash 905,080 Accounts receivable Prepaid insurance Inventory Property and equipment, net 15,600 k 77,952 1,117,000 t nces Total assets $ 2,115,632 Liabilities and Stockholders' Equity Accounts payable Dividends payable 28,500 Common stock 1,160,000 Retained earnings Total liabilities and stockholders' equity $ 1,188,500