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$20 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) 23,200 29,200 43,200 68,200 103,200 June (budget) July (budget) August (budget) September (budget) 53,200 33,200 31,200 28,200 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 $5.60 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: 4% of sales Variable: Sales commissions Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $360,000 $ 34,000 $ 138,000 $ 15,000 $ 4,600 $ 30,000 AU Insurance is paid on an annual basis, in November of each year. The company plans to purchase $24,000 in new equipment during May and $56,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $27,000 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: $ 90,000 Assets Cash Accounts receivable ($58,400 February sales; $691,200 March sales) Inventory Prepaid insurance Property and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Dividends payable Common stock Retained earnings Total liabilities and stockholders' equity 749,600 152,768 29,000 1,110,000 $ 2,131,368 $ 116,000 27,000 1,120,000 868,368 $ 2,131,368 The company maintains a minimum cash balance of $66,000. 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 $66,000 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 $66,000. 3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach. Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 1C Req 10 Reg 2 Req3 Reg 4 Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected cas month and in total. February sales March sales April sales May sales June sales Total cash collections Earrings Unlimited Schedule of Expected Cash Collections April May June $ 58,400 483,840 272,800 954,800 136,400 412,800 1,444,800 212,800 $ 815,040 $ 1,367,600 $ 1,794,000 Quarter $ 58,400 483,840 1,364,000 1,857,600 212,800 $ 3,976,640 Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 1C Req 10 Reg 2 Req3 Req 4 Prepare a master budget for the three-month period ending June 30 that includes a merchandise purchases b 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 Budgeted unit sales 68,200 103,200 Add: Desired ending merchandise inventory 41,280 21,280 Total needs 109,480 124,480 Less: Beginning merchandise inventory 27,280 41,280 Required purchases 82,200 83,200 Unit cost $ 5.60 $ 5.60 Required dollar purchases $ 460,320 $ 465,920 June 53,200 13,280 66,480 45,200 21,280 Quarter 224,600 75,840 300,440 89,840 210,600 5.60 $ 1,179,360 $ 5.60 $ 119,168 Reg 1A Reg 1B Reg 1C Req 1D Reg 2 Reg 3 Req 4 10 points Prepare a master budget for the three-month period ending June 30 that includes a cash budget. Show the bu and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $66,00 deficiency, repayments and interest should be indicated by a minus sign.) Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May June Quarter Beginning cash balance $ 90,000 $ 66,760 $ 317.680 $ 90,000 Add collections from customers 762,480 1,367,600 1,794,000 3,924,080 Total cash available 852,480 1,434,360 2,111,680 4,014,080 Less cash disbursements: Merchandise purchases 346,160 463,120 359,520 1,168,800 Advertising 360,000 360,000 360,000 1,080,000 Rent 34.000 34,000 34,000 102,000 Salaries 138,000 138,000 138,000 414.000 Commissions 54,560 82,560 42,560 179,680 Utilities 15,000 15,000 15,000 45,000 Equipment purchases 24,000 56,000 80,000 Dividends paid 27,000 0 0 27,000 Total cash disbursements 974,720 1,116,680 1,005,080 3,096,480 Excess (deficiency) of cash available over disbursements (122,240) 317,680 1,106,600 917,600 Financing Borrowings 189,000 0 0 189,000 Repayments 0 (189,000) (189,000) Interest 0 (5,670) (5,670) Total financing 189,000 0 (194,670) (5,670) Ending cash balance $ 66,760 $ 317,680 $ 911,930 $ 911,930 0 0 Mc Graw Hill