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)... 22,400 June (budget)... 52,400 February (actual)... 28,400 July (budget)... 32,400 March (actual)... 42,400 August (budget) ... 30,400 April (budget)... 67,400 September (budget) 27,400 May (budget)... 102,400
The concentration of sales before and during May is due to Mother?s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $5.2 for a pair of earrings. One-half of a month?s purchases are paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month?s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible. Monthly operating expenses for the company are given below:
Variable: Sales commissions..................4% of sales
Fixed: Advertising.....................$320,000 Rent................................30,000 Salaries........................130,000 Utilities.........................13,000 Insurance......................4,200 depreciation.................26,000
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $22,000 in new equipment during May and $52,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $24,000 each quarter, payable in the first month of the following quarter.
A listing of the company?s ledger accounts as of March 31 is given below:
Assets Cash.............................................................................$ 86,000 Accounts Receivable($45,440February sales; $542,720 March Sales)................................. 588,160 Inventory...................................................................... 140,192 Prepaid insurance......................................................... 27,000 Property and equipment(net)....................................... 1,070,000 Total Assets................................................................. $1,911,352
Liabilities and Stockholders? Equity Accounts Payable.........................................................$ 112,000 Dividends Payable......................................................... 24,000 Capital stock................................................................. 1,040,000 Retained Earnings......................................................... 735,352 Total liabilities and stockholders? equity $1,911,352
The company maintains a minimum cash balance of $62,000. 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 $1,000 at the beginning of each month. The interest rate on these loans is 1% 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 $1,000), while still retaining at least $62,000 in cash.
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
Required Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
1. a. A sales budget, by month and in total b. A schedule of expected cash collections from sales, by month and in total. c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 2. A cash budget. Show the budget by month and in total. 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)... 22,400 June (budget)... 52,400 February (actual)... 28,400 July (budget)... 32,400 March (actual)... 42,400 August (budget) ... 30,400 April (budget)... 67,400 September (budget) 27,400 May (budget)... 102,400
The concentration of sales before and during May is due to Mother?s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $5.2 for a pair of earrings. One-half of a month?s purchases are paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month?s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible. Monthly operating expenses for the company are given below:
Variable: Sales commissions..................4% of sales
Fixed: Advertising.....................$320,000 Rent................................30,000 Salaries........................130,000 Utilities.........................13,000 Insurance......................4,200 depreciation.................26,000
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $22,000 in new equipment during May and $52,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $24,000 each quarter, payable in the first month of the following quarter.
A listing of the company?s ledger accounts as of March 31 is given below:
Assets Cash.............................................................................$ 86,000 Accounts Receivable($45,440February sales; $542,720 March Sales)................................. 588,160 Inventory...................................................................... 140,192 Prepaid insurance......................................................... 27,000 Property and equipment(net)....................................... 1,070,000 Total Assets................................................................. $1,911,352
Liabilities and Stockholders? Equity Accounts Payable.........................................................$ 112,000 Dividends Payable......................................................... 24,000 Capital stock................................................................. 1,040,000 Retained Earnings......................................................... 735,352 Total liabilities and stockholders? equity $1,911,352
The company maintains a minimum cash balance of $62,000. 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 $1,000 at the beginning of each month. The interest rate on these loans is 1% 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 $1,000), while still retaining at least $62,000 in cash.
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
Required Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
1. a. A sales budget, by month and in total b. A schedule of expected cash collections from sales, by month and in total. c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 2. A cash budget. Show the budget by month and in total. 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)... 22,400 June (budget)... 52,400 February (actual)... 28,400 July (budget)... 32,400 March (actual)... 42,400 August (budget) ... 30,400 April (budget)... 67,400 September (budget) 27,400 May (budget)... 102,400
The concentration of sales before and during May is due to Mother?s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $5.2 for a pair of earrings. One-half of a month?s purchases are paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month?s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible. Monthly operating expenses for the company are given below:
Variable: Sales commissions..................4% of sales
Fixed: Advertising.....................$320,000 Rent................................30,000 Salaries........................130,000 Utilities.........................13,000 Insurance......................4,200 depreciation.................26,000
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $22,000 in new equipment during May and $52,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $24,000 each quarter, payable in the first month of the following quarter.
A listing of the company?s ledger accounts as of March 31 is given below:
Assets Cash.............................................................................$ 86,000 Accounts Receivable($45,440February sales; $542,720 March Sales)................................. 588,160 Inventory...................................................................... 140,192 Prepaid insurance......................................................... 27,000 Property and equipment(net)....................................... 1,070,000 Total Assets................................................................. $1,911,352
Liabilities and Stockholders? Equity Accounts Payable.........................................................$ 112,000 Dividends Payable......................................................... 24,000 Capital stock................................................................. 1,040,000 Retained Earnings......................................................... 735,352 Total liabilities and stockholders? equity $1,911,352
The company maintains a minimum cash balance of $62,000. 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 $1,000 at the beginning of each month. The interest rate on these loans is 1% 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 $1,000), while still retaining at least $62,000 in cash.
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
Required Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
1. a. A sales budget, by month and in total b. A schedule of expected cash collections from sales, by month and in total. c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 2. A cash budget. Show the budget by month and in total. b. A schedule of expected cash collections from sales, by month and in total Earrings Unl Schedule of Expected Cash Collections April May June Quarter February sales March sales April sales May sales June sales Total cash collections c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total Round "Unit cost" answers to 2 decimal places.) Earrings Unlimited Merchandise Purchases Budget April May June Quater Budgeted unit sales Total needs Required purchases Unit cost Required dollar purchases d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. Earrings Unlimited Budgeted Cash D s for Merchandise Purchases April May June Accounts payable April purchases May purchases June purchases Total cash payments

Explanation / Answer

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. 1a. Sales Budget Feb Mar April May June Quarter July August Sale Units 67400 102400 52400 222200 32400 30400 Selling Price per unit 13 13 13 13 13 13 Total Sale 876200 1331200 681200 2888600 421200 395200 1b. Schedule of expected cash collection April May June Quarter Accounts Receivable February Sales 45440 45440 March Sales 474880 67840 542720 April Sales 175240 613340 87620 876200 May Sales 266240 931840 1198080 133120 June Sales 136240 136240 544960 Total Cash Collection 695560 947420 1155700 2798680 678080 1c. Merchandise Purchase Budget Mar April May June Quarter July Budgeted Units Sale 42400 67400 102400 52400 222200 32400 Add: Desired Ending Inventory 26960 40960 20960 12960 12960 Total Sales 69360 108360 123360 65360 235160 Less: Beginning Inventory 16960 26960 40960 20960 26960 Required Purchase 52400 81400 82400 44400 208200 Unit Cost 5.2 5.2 5.2 5.2 5.2 Required Dollar Purchase 272480 423280 428480 230880 1082640 1d. Expected Cash Disbursment Schedule Mar April May June Quarter Accounts Payable Accounts Payable 112000 112000 April Purchases 211640 211640 423280 May Purchase 214240 214240 428480 June Purchase 115440 115440 115440 Total Cash Payment 323640 425880 329680 1079200 2. Cash Budget April May June Quarter Beginning Cash Balance 86000 62642 62224 86000 Add: Collection from Customers 695560 947420 1155700 2798680 Total Cash Available 781560 1010062 1217924 2884680 Less: Cash Disbursments: Merchandise Purchase 423280 428480 230880 1082640 Advertising 320000 320000 320000 960000 Rent 30000 30000 30000 90000 Salaries 130000 130000 130000 390000 Commissions 35048 53248 27248 115544 Utilities 13000 13000 13000 39000 Equipment Purchase 22000 52000 74000 Dividends Paid 24000 24000 Total Cash Disbursments 975328 996728 803128 2775184 Excess of Cash available over disbursment -193768 13334 414796 109496 Financing: Borrowings 259000 52000 311000 Repayment -311000 -311000 Interest 2590 3110 3110 8810 Ending Balance 62642 62224 100686 100686 3. Budgeted Income Statement Sales 2888600 Less: Variable Expense: Merchandise Cost (222200*5.2) 1155440 Sales Commission (4% of sales) 115544 1270984 Less: Fixed Expense: Advertising 960000 Rent 90000 Salaries 390000 Utilities 39000 Depreciation 78000 Insurance 12600 Interest Expense 8810 1578410 Net Income 39206 4. Balance Sheet Assets: Cash 100686 Accounts Receivable 678080 Inventory (12960*5.2) 67392 Prepaid Insurance (27000-12600) 14400 Property Plant and Equipment 1066000 (1070000+22000+52000-78000) Total Assets 1926558 Accounts Payable 112000 Dividends Payable 24000 Capital Stock 1040000 Retained Earning 750558 (735352+39206-24000) Total Equity and Liabilities 1926558

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