You have just been hired as a new management trainee by Flipflops Inc., a distributor of lowcost sandals 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 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 sandals, but all are sold for the same price 10 per pair. Actual sales of sandals for the last three months and budgeted sales for the next six months follow (in pair of sandals): January(actual) 20,000 February(actual) 26,000 March (actual) 40,0000 April(budget) 65,000 May(budget) 100,000 June(budget) 50,000 July(budegt) 30,000 August(budegt) 28,000 September(budegt) 25,000 The concentration of sales before and during May is due to the beginning of warmer weather. Sufficient inventory should be on hand at the end of each month to supply 40.0% of the sandals sold in the following month. The Company pays suppliers $4.00 for a pair of sandals. Onehalf of a months purchases is paid for in the month of purchase; 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 sales are collected as follows: 15% of a months sales are collected in the month of sale 75% is collected in the following month 10% is collected in the second month following sale Monthly operating expenses for the company are given below: Variable: Sales Commissions 5% of sales Fixed: Advertising $195,000 Rent $20,000 Salaries $105,000 Utilities $7,000 Insurance $3,000 Depreciation $16,000 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 $35,000 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. A listing of the companys ledger accounts as of March 31 is given below: ASSETS Cash $74,000 Accounts Receivable $366,000 Inventory $104,000 Prepaid Insurance $21,000 Property and Equip(net of depreciation) $950,000 Total Assets $1,515,000 Balance includes $26,000 in February sales and an additional $340,000 in March sales LIABILITIES & STOCKHOLDERS' EQUITY Accounts Payable $100,000 Dividends Payable $15,000 Common Stock $800,000 Retained Earnings $600,000 Total Liabilities & Stockholders' Equity $1,515,000 The company maintains a minimum cash balance of $50,000 The company has an agreement with a bank that allows the company to borrow in increments of at the beginning of each month. The interest rate on these loans is 1.50%. per month and for simplicity we will assume that interest is not compounded. All borrowing is done at the beginning of a month; any repayments are made at the end of a month. 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 threemonth period ending June 30. Include the following detailed budgets: 1. A budgeted income statement for the three-month period ending June 30. Use the contribution approach. 2. A budgeted balance sheet as of June 30