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-$14 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) 20,800 26,800 40,800 65,800 100,800 June (budget) July (budget) August (budget) September (budget) 50,800 30,800 28,800 25,800 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 $4.40 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 $ 240,000 $ 22,000 $ 114,000 $ 9,000 $ 3,400 $ 18,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $18,000 in new equipment during May and $44,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $18,000 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: $ 78,000 Assets Cash Accounts receivable ($37,520 February sales; $456,960 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 494,480 115,808 23,000 990,000 1,701,288 $ $ 104,000 18,000 880,000 699,288 $ 1,701,288 The company maintains a minimum cash balance of $54,000. 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 $54,000 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. Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Reg 1C Req 1D Reg 2 Req3 Reg 4 Prepare a master budget for the three-month period ending June 30 that includes a sales budget, by month and in total. Budgeted unit sales Selling price per unit Total sales Sales Budget April May 65,800 100,800 $ 14 $ 14 $ 921,200 $ 1,411,200 June Quarter 50,800 217,400 $ 14 $ $ 711,200 $ 3,043,600 Req 1A Reg 1B Req 1C Req 10 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 Total cash collections Earrings Unlimited Schedule of Expected Cash Collections April May June $ 37,5201 0 399,840 57,120 184,240 644.840 92,120 0 282,240 987,840 01 0 142,240 $ 621,600 $ 984,200 $ 1,222,200 Quarter $ 37,520 456,960 921,200 1,270,080 142,240 $ 2,828,000 Complete this question by entering your answers in the tabs below. 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 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 Budgeted unit sales 65,800 100,800 Add: Desired ending merchandise inventory 40,320 20,320 Total needs 106,120 121,120 Less: Beginning merchandise inventory 26,320 40,320 Required purchases 79,800 80,800 Unit cost $ 4.40 $ 4.40 Required dollar purchases $ 351,120 $ 355,520 June 50.800 12,320 63,120 20,320 42,800 4.40 188,320 Quarter 217,400 72,960 290,360 86,960 203,400 $ 4.40 $ 894,960 $ $ Complete this question by entering your answers in the tabs below. Reg 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 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 $ 104,000 $ 0 $ 0 $ 104,000 April purchases 175,560 175,560 0 351,120 May purchases 0 177,760 177,760 355,520 June purchases 01 | 0 94,160 94,160 Total cash payments $ 279,560 $ 353,320 $ 271,920 904,800 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 $54,000. 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. Reg 1A Reg 1B Reg 1C Req 10 Reg 2 Reg 3 Reg 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 $54,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.) May June Quarter 0 0 so Earrings Unlimited Cash Budget For the Three Months Ending June 30 April Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Merchandise purchases Advertising dvertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid Total cash disbursements 0 Excess (deficiency) of cash available over disbursements Financing Borrowings Repayments Interest Total financing Ending cash balance $ 0 $ 0 0 0 0 $ 0 $ 0 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 budgeted income statement for the three- month period ending June 30. Use the contribution approach. od Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Variable expenses: Fixed expenses: Reg 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 budgeted balance sheet as of June 30. Earrings Unlimited Budgeted Balance Sheet June 30 Assets Total assets Liabilities and Stockholders' Equity Total liabilities and stockholders' equity $