You were hired as a new management trainee by Jewel Tree, Inc (JTI), a distributor of fine jewelry 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 been tasked with preparing 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 the financial accounting department and other areas to gather the information assembled below. The company sells many styles of bracelets, but all sell for the same price: $45 per piece. Actual sales for the last three months and budgeted sales for the next six months follow (in number of bracelets): January (actual) 20,000 June (budget) 48,000 February (actual) 24,000 July (budget) 43,000 March (actual) 42,000 August (budget) 28,000 April (budget) 88,000 September (budget) 27,000 May (budget) 105,000 The concentration of sales before and during May is due to the Mothers Day holiday in the U.S. You decide that sufficient finished goods should be on hand at the end of each month to supply 25% of the bracelets sold in the following month. March started with 2,000 bracelets in inventory; at the end of the month, there are 8,000 bracelets in inventory. Each bracelet requires two ounces (2 oz.) of metal and 10 colored jewels. Metal is $15 per pound and colored jewels are $215 per pound; there are 250 colored jewels per pound. There are 20 pounds of metal and 10 pounds of colored jewels in raw materials inventory on hand at both the beginning and the end of March. After discussions with the production area and purchasing, you decide to develop raw materials requirements also. The materials requirement for metal is to have 20% of the next months needs on hand and the materials requirement for jewels is 40% of the next months needs. JTI assembles the bracelets by twisting the metal into shape and attaching the jewels. The average labor rate to assemble the bracelets is $15 per hour. It takes 20 minutes to design and assemble each bracelet. One-half of each months purchases (both metal & jewels) are paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. The company has found only 30% of each months sales are collected in the month of sale. Of the remaining sales to be collected, 70% is collected in the following month, and 26% is collected in the second month following sale. Other expenses for the company are given below: Other Variable Expenses: Sales commissions 5% of sales MOH 1.50 / DLH Annual Fixed Expenses: Advertising $ 192,000 Rent 45,000 Administrative Salaries 160,000 Factory Supervisor Salaries 96,000 Factory Utilities 65,000 Sales Office Utilities 10,000 Insurance 3,000 Allocated Depreciation 25,000 Administrative Bldg. Utilities 12,000 Sales Bldg. Depreciation 8,000 Repair & Maint. 45,000 All expenses are paid monthly, unless otherwise indicated. Insurance is paid on an annual basis, in June of each year and is divided equally between the factory, sales office and administration office. Rent is also divided evenly between the factory, sales office and administrative offices. Allocated depreciation is split evenly between factory equipment and sales equipment. Repair & maintenance expenses are allocated with 80% to the factory and 10% each to sales and administration. The company plans to purchase $36,000 in new equipment during May and $75,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $25,000 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 $ 60,000 Accounts receivable (RM purchases) 2,316,600 Inventory 276,890 Prepaid insurance 38,000 Property and equipment (net) 950,000 Total assets $ 3,641,490 Liabilities and Stockholders Equity Accounts payable $ 495,000 Dividends payable 25,000 Short-term loan payable 40,000 Common stock 2,036,000 Retained earnings 1,045,490 Total liabilities and stockholders equity $ 3,641,490 The company maintains a minimum cash balance of $60,000. 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 $5,000 at the beginning of each month. The interest rate on these loans is 2% 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 $5,000), while still retaining at least $40,000 in cash. The companys current loan amount (as shown on the balance sheet above) is $25,000. Part I: Operating & Cash Budgets/Income Statement & Contribution Income Statement. Prepare all budgets and statements as directed below using good form using MS Excel for the three-month period ending June 30th (each month plus quarterly totals) using one tab per budget. Include the following: a. A sales budget, by month and quarterly total b. A production budget, by month and quarterly total c. A direct materials budget, by month and quarterly total d. A direct labor budget, by month and quarterly total e. A manufacturing overhead budget, by month and quarterly total f. A schedule showing the per unit production cost for the jewelry f. A selling expense budget, by month and quarterly total g. An administrative budget, by month and quarterly total h. A cash receipts schedule, by month & in total i. A cash disbursements schedule, by month and quarterly total j. A cash budget, by month and quarterly total Part 2: Flexible Budget and Variance analysis Pretend the following income statement was your budgeted income statement in part i of the above problem (PLEASE NOTE IT IS NOT!) Use the ratios from your contribution income statement to create a CMIS for the budgeted income statement above at 70,000 units (ratios from part 1, information from part 2). JTI Budgeted Income Statement For April Net Sales (70,000 units) 4,550,000 Cost of Goods Sold 2,105,600 Gross Profit 2,444,400 Selling Expenses 532,625 Administrative Expenses 17,000 Operating Income 1,894,775 The actual April results are as follows: JTI Actual Income Statement For April Net Sales (72,000 units) 4,250,000 Cost of Goods Sold 2,405,000 Gross Profit 1,854,000 Selling Expenses 600,200 Administrative Expenses 18,000 Operating Income 1,235,000 a. Create a CMIS for the initial April budget at the 70,000 unit level, using the ratios developed in part 1, and budgeted income numbers from part 2. b. Prepare a flexible budget at 72,000 units for JTI using the CMIS you created in the previous step. Compare the flexible budget to the actual results. c. Identify the dollar amount of the variances, and indicate if they are favorable or unfavorable. For each variance identified, give more than one reason the variance might exist. Identify where you might go to investigate each variance