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 February (actual) 24,000 March (actual) April (budget) May (budget) 42,000 88,000 105,000 The concentration of sales before and during May is due to the Mother's 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 month's needs on hand and the materials requirement for jewels is 40% of the next month's needs. June (budget) 48,000 July (budget) 43,000 August (budget) 28,000 September (budget) 27,000 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 month's 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 month's 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 MOH Annual Fixed Expenses: Advertising Rent Administrative Salaries Factory Supervisor Salaries Factory Utilities Sales Office Utilities Insurance Allocated Depreciation $ 192,000 45,000 160,000 96,000 65,000 10,000 3,000 25,000 5% of sales 1.50/ DLH Administrative Bldg. Utilities Sales Bldg. - Depreciation Repair & Maint. 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 company's ledger accounts as of March 31 is given below: Assets Cash Accounts receivable (RM purchases) Inventory Prepaid insurance Property and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Dividends payable Short-term loan payable Common stock Retained earnings Total liabilities and stockholders' equity $ $ 12,000 8,000 45,000 $ $ 60,000 2,316,600 276,890 38,000 950,000 3,641,490 495,000 25,000 40,000 2,036,000 1,045,490 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 company's current loan amount (as shown on the balance sheet above) is $25,000. 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) Cost of Goods Sold Gross Profit Selling Expenses Administrative Expenses Operating Income The actual April results are as follows: JTI Actual Income Statement For April Net Sales (72,000 units) Cost of Goods Sold Gross Profit Selling Expenses Administrative Expenses Operating Income 4,550,000 2,105,600 2,444,400 532,625 17,000 1,894,775 4,250,000 2,405,000 1,854,000 600,200 18,000 1,235,000