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)

20,000

February (actual)

26.000

March (actual)

40,000

April (budget)

65.000

May (budget)

100.000

June (budget)

50.000

July (budget)

30,000

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 $200,000

Rent 18,000

Salaries $106,000

Utilities $7000

Insurance $3,000

Depreciation $14.000

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:

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.

please show work

Inventory 104,000 Prepaid insurance 21,000 Property and equipment (net) 950,000 Total assets $1,495,000 Liabilities and Stockholders' Equity Accounts payable $ 100,000 Dividends payable 15,000 Common stock 800,000 Retained earnings 580,000 Total liabilities and stockholder's eauitv $1495 000 Total assets $1,495,000 Liabilities and Stockholders' Equity Accounts payable Dividends payable $ 100,000 15,000 Common stock 800,000 Retained earnings 580,000 Total liabilities and stockholder's equity $1,495.000 The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments are made 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