You have just been hired as a new management trainee by Earrings Unlimited, a di

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. The company sells many styles of earrings, but all are sold for the same price

Explanation / Answer

In March, the purchase requirements would have been: 60% of 40,000.......24,000 40% of 65,000.......26,000 Total units.............50,000 Cost per unit...............$4 Total cost...........$200,000 The disbursements are paid 50% in the current month and 50% in the next month. In March, $100,000 is paid and therefore $100,000 is in A/P - agrees to your problem. ETA - So we know $100,000 will be paid in April. We will also pay 50% of the April purchases. $316,000 in total for April

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