You have just been hired as a new management trainee by Earrings Unlimited, a distributer of earnings 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 a certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. To this end, you have worked with accounting and other areas to gather the information assembled below. The company sells many styles of earnings, but all are sold for the same price Dh 10 per pair. Actual sales of earnings for the last three months and budgeted sales for the next six months follows: (in pairs of earnings) January (actual) 18,000 June (budgeted) 45,000 February (actual) 23,400 July (budgeted) 27,000 March (actual) 36,000 August (budgeted) 25,200 April (budgeted) 58,500 September (budgeted) 22,500 May (budgeted) 90,000 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 earnings sold in the following month. Supplies are paid DH 4 a pair of earnings. One half of a month purchases is paid for in the month of purchases; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a months sales are collected in the month of sales. 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 commission 4% of sales

Fixed: Advertising DH 180,000 Rent Dh 16,200 Salaries DH 97,200 Utilities Dh 6,300 Insurance DH 2,700 Depreciation Dh 12,600 Insurance is paid on annual basis, in November of each year.

The company plans to purchase DH 14,400 in new equipment during May and DH 36,000 in new equipment during June: both purchases will be for cash. The company declares dividends of DH 13,500 each quarter, payable in the first month of the following quarter. A listing of the companys ledger accounts as of March 31 is given below: Assets Cash Dh 66,600 Accounts receivables (DH 26,000 February sales; DH 320,000 March Sales) 311,400 Inventory 93,600 Prepaid insurance 18,900 Property plant and equipment (net) 855,000 Total assets DH 1,345,500 Liabilities and Stockholders Equity Accounts payable Dh 90,000 Dividends payable 13,500 Common stock 720,000 Retained earnings 522,000 Total Liabilities and Stockholders Equity DH 1,345,500 The company maintain a minimum cash balance of DH 50,000. All borrowing is done at the beginning of a month: any repayments are made at the end of the month. The company has an agreement with the bank that allows the company to borrow in increments of DH 900 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 DH 900), while still retaining at least DH 45,000 cash.

Required: Prepare the master budget for the three months period ending June 30. Include the following detailed budgets: 1. a. A sales budget, by month and in total. b. A schedule of expected cash collections from sales, by month and in total. c. A merchandise purchases budget in units and in dollars. Show the budgeted 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 DH 45,000.