Return to question You have just been hired as a new management trainee by Earri

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Return to 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 a master budget for the upcoming second quarter. 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-$18 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) February (actual) March (actual) April (budget) May (budget) 22,800 June (budget) 28,800 July (budget) 42,800 August (budget) 67,800 September (budget) 27,800 52,800 32,800 30,800 102,800 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 $5.40 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. 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:

Explanation / Answer

1a. EARRINGS UNLIMITED Sales Budget For the Three Months Ending June 30 April May June Total Budgeted sales in units 67800 102800 52800 223400 Unit selling price $          18 $          18 $          18 $               18 Total budgeted sales $ 1220400 1850400 950400 4021200 1b. Schedule of Expected Cash Collections April May June Total Budgeted sales $ 1220400 1850400 950400 4021200 Collection of: February sales 51840 51840 March sales 539280 77040 616320 April sales 244080 854280 122040 1220400 May sales 370080 1295280 1665360 June sales 190080 190080 Total cash collections $ 835200 1301400 1607400 3744000 1c. EARRINGS UNLIMITED Purchases Budget For the Three Months Ending June 30 April May June Total Budgeted next month's sales in (units) 102800 52800 32800 188400 Desired ending inventory as percent of next months' sales 40% 40% 40% Budgeted ending inventory (units) 41120 21120 13120 13120 Budgeted sales (units) 67800 102800 52800 223400 Total units required 108920 123920 65920 236520 Less: Beginning inventory 27120 41120 21120 27120 Budgted purchases (units) 81800 82800 44800 209400 Purchase price per unit $       5.40 $       5.40 $       5.40 $       5.40 Total budgeted purchases $ 441720 447120 241920 1130760 1d. Schedule of Expected Cash Disbursements for Merchandise Purchase April May June Total Budgeted purchases $ 441720 447120 241920 1130760 Disbursement for: March purchases 114000 114000 April purchases 220860 220860 441720 May purchases 223560 223560 447120 June purchases 120960 120960 Total cash disbursements $ 334860 444420 344520 1123800

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