You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outiets located in shopping malis 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 upcorming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below The company seils many styles of earrings, but all are sold for the same price- $16 per pair. Actual sales of earrings for the iast three moinths and budgeted sales for the next six months follow (in pairs of earrings) Wne cancentration of sales before and during May in due to Mother's Bay. Sufficlent inventory should be on hand at the end ar each wignthn 10 supoly 40 of of the eartings sold in the following month. Suppliers are paid $4.60 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase, the other haif 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 alie An additional ros. it collected in the following month, and the remaining 10% is collected in the second month following sale. Band debts have been nechipitie Martuky opei ating expenses for the company are given below The company pians to purchase $19,000 in new equipment during May and $46,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $19,500 each quarter, payable in the first month of the foliowing quarter. The company's balance sheet as of March 31 is given below: the company maintains a minimum cash balance of $56,000. All borrowing is done at the beginning of a monthi acty repoymeris mie The compary has an agreement with a bank that altows 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 cornpounded 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 stili retaining at least $56,000 in cash Required: Prepare a master budget for the three-month period ending June 30 . Include the following detalled schedules: 1.a. A sales budget. by month and in total. D. A schedule of expected cash collections, by month and in totat C. A merchendise purchases budget in units and in dollars. Show the budget by month and in total. a. A schedule of expected cash disbursements for merchandise purchases, by month and in total 2. A canh budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minitium cintribolance of $56,000 3 A budgeted income rtatement for the three-month period ending June 30 . Use the contribution approacti 4. A byogeted balance sheet as of June 30
