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 earring 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- $13 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)... 21,300 June (budget)... 51,300 February (actual)... 27,300 July (budget)... 31,300 March (actual)... 41,300 August (budget) ... 29,300 April (budget)... 66,300 September (budget) 26,300 May (budget)... 101,300 The concentration of sales before and during May is due to Mother

Explanation / Answer

Morning. Ok well I went through some of the figures and think I did the budgeted cash disbursements for merchandise purchases correctly. I also started n on the 3 month cash budget. I am hungup now here. I understand that all money financed is to be paid in full in the following month. However as the mth of may unfolds I come to see that we have a surplus of cash this month ($76400) however when we pay back previous mth finance we are at a point of needing to finance money to cover next mth, so I am a bit lost here. Thx 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

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