You havejust 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$18 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) 22,800 June (budget) 52,300 February (actual) 28,800 July (budget) 32,300 March (actual) 42,800 August (budget) 30,300 . September April (budget) 67,800 (budget) 27,300 May (budget) 102,800 The concentration of sales before and during May is due to Mother's Day. Sufcient 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 $5.40 for a pair of earrings. One-half ofa 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 $ 340,000 Rent $ 32,000 Salaries $ 134,000 Utilities $ 14,000 Insurance $ 4,400 Depreciation $ 28,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $23,000 in new equipment during May and $54,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $25,500 each quarter, payable in the rst month of the following quarter. The company's balance sheet as of March 31 is given below: Assets Cash $ 88,000 Accounts receivable ($51,840 February sales; $616,320 March sales) 668,160 Inventory 146,448 Prepaid insurance 28,000 Property and equipment (net) 1,090,000 Total assets $ 2,020,608 Liabilities and stockholders' Equity Accounts payable 3 114,000 Dividends payable 25.500 Common stock 1,080,000 Retained earnings 801,108 Total liabilities and stockholders' equity 5 210201603 The company maintains a minimum cash balance of $64,000. 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 ofthe 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 $64,000 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 $64,000. 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. 6 Answer is not complete. Complete this question by entering your answers in the tabs below. ' Req 3 Req 4 Req 1A ' Req lB Req 1C ' Req 1D ' Req 2 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 67,800 0 102,800 a 52,800 0 223,400 Selling price per unit $ 18 o $ 18 $ 18 $ 18 Total sales $ 1,220,400 $ 1,850,400 $ 950,400 $ 4,021,200 Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Req 1D Req 2 Req 3 Req 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. Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter February sales $ 51,840 V $ 51,840 March sales 539,280 77,040 V 616,320 April sales 244,080 V 854,280 122,040 1,220,400 May sales 370,080 V 1,295,280 V 1,665,360 June sales 190,080 190,080 Total cash collections $ 835,200 $ 1,301,400 $ 1,607,400 $ 3,744,000Req 1A Req 1B Req 1C Req 1D Req 2 Req 3 Req 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 June Quarter Budgeted unit sales 67,800 102,800 52,800 V 223,400 Add: Desired ending merchandise inventory v 41,120 V 21, 120 V 13, 120 13,120 Total needs 108,920 123,920 65,920 236,520 Less: Beginning merchandise inventory 27,120 V 41,120 V 21,120 27,120 Required purchases 81,800 82,800 44,800 209,400 Unit cost $ 5.40 V $ 5.40 $ 5.40 $ 5.40 Required dollar purchases $ 441,720 $ 447,120 $ 241,920 1,130,760Req 1A Req 1B Req 1C Req 1D Req 2 Req 3 Req 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 114,000 $ 114,000 April purchases 220,860 V 220,860 441,720 May purchases 223,560 V 223,560 447,120 June purchases 120,960 V 120,960 $ $ Total cash payments $ 334,860 444,420 344,520 1, 123,800Req 1A Req 1B Req 1C Req 1D Req 2 Req 3 Req 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 $64,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May June Quarter Beginning cash balance $ 88,000 Add collections from customers 835,200 Total cash available 923,200 0 0 0 Less cash disbursements: Merchandise purchases 334,860 444,420 344,520 1, 123,800 Advertising 340,000 340,000 340,000 1,020,000 Rent 32,000 32,000 32,000 96,000 Salaries 134,000 134,000 134,000 402,000 Commissions 48,816 74,016 38,016 160,848 Utilities 14,000 14,000 14,000 42,000 Equipment purchases 23,000 54,000 77,000 Dividends paid 25,500 25,500 Total cash disbursements 929, 176 1,061,436 956,536 2,947, 148 Excess (deficiency) of cash available over disbursements (5,976) (1,061,436) (956,536) (2,947, 148) Financing: Borrowings 0 Repayments 0 Interest 0 Total financing 0 0 0 0 $ Ending cash balance $ (5,976) $ $ (1,061,436) (956,536) (2,947, 148)Req 1A Req 1B Req 1C Req 1D Req 2 Req 3 Req 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. Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Sales $4,021,200 Variable expenses: Cost of goods sold Commissions 0 Contribution margin 4,021,200 Fixed expenses: Advertising Rent Salaries Utilities Insurance Depreciation 0 Net operating income 4,021,200 Interest expense Net income 4,021,200Req 1A Req 1B Req 1C Req 1D Req 2 Reg 3 Req 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 Cash Accounts receivable Inventory Prepaid insurance Property and equipment, net Total assets $ 0 Liabilities and Stockholders' Equity Accounts payable Dividends payable Common stock Retained earnings Total liabilities and stockholders' equity $ 0