You have just been hired as a new management trainee by Earrings Unlimited, a di
ID: 2357832 • Letter: Y
Question
You have just 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 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.
You have just 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.
Explanation / Answer
MERCHANDISE PURCHASES BUDGET: April May June Quarter Budgeted unit sales 65,000 100,000 50,000 215,000 Add desired ending inventory 40,000 20,000 12,000 12,000 Total needs 105,000 120,000 62,000 227,000 Less beginning inventory 16,000 40,000 20,000 16,000 Required purchases 89,000 80,000 42,000 211,000 Cost of purchases @ $4 per unit $ 356,000.00 $ 320,000.00 $ 168,000.00 $ 844,000.00 You did this for April - June. To compute March, you would have: 60% of 40,000.......24,000 40% of 65,000.......26,000 Total units.............50,000 Cost per unit...............$4 Total cost...........$200,000 BUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES: April May June Quarter Accounts payable $100,000.00 $100,000.00 April purchases $158,000.00 $158,000.00 $316,000.00 May purchases $160,000.00 $160,000.00 $320,000.00 June purchases $84,000.00 $84,000.00 Total cash payments $258,000.00 $318,000.00 $244,000.00 $416,000.00 EARRINGS UNLIMITED CASH BUDGET FOR THE THREE MONTHS ENDING JUNE 30 April May June Quarter Cash balance $74,000.00 $50,400.00 Add collections from customers $436,000.00 $695,000.00 $86,500.00 $595,600.00 Total cash available $510,000.00 $745,400.00 $86,500.00 $1,341,900.00 Less Disbursements Merchandise purchases $258,000.00 $318,000.00 $244,000.00 $416,000.00 Advertising $200,000.00 $200,000.00 $200,000.00 $200,000.00 Rent $18,000.00 $18,000.00 $18,000.00 $18,000.00 Salaries $106,000.00 $106,000.00 $106,000.00 $106,000.00 Commissions $2,600.00 $4,000.00 $2,000.00 $8,600.00 Utilities $7,000.00 $7,000.00 $7,000.00 $7,000.00 Equipment purchases $16,000.00 $40,000.00 Dividends paid $15,000.00 Total Disbursements $606,600.00 $669,000.00 $373,000.00 $339,600.00 Excess (deficiency) of receipts over disbursements (96,600) 76,400 Financing: Borrowings 146,600 Repayments 147,000 Interest Total financing 147,000 (70,600) Cash balance, ending 50,400 Im struck here!
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