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—$19 per pair. Actual sales of earrings for the last
three months and budgeted sales for the next six months follow (in
pairs of earrings):
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 $5.50 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:
Insurance is paid on an annual basis, in November of each
year.
The company plans to purchase $23,500 in new equipment during
May and $55,000 in new equipment during June; both purchases will
be for cash. The company declares dividends of $26,250 each
quarter, payable in the first month of the following quarter.
The company’s balance sheet as of March 31 is given below:
The company maintains a minimum cash balance of $65,000. 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 $65,000 in
cash.
Required:
Prepare a master budget for the three-month period ending June
30. Include the following detailed schedules:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections,
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.
Determine any borrowing that would be needed to maintain the
minimum cash balance of $65,000.
3. A budgeted income statement for the three-month period ending
June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.
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Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected cash col month and in total. Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter February sales $ 55,100 0 0 March sales 571,900 81,700 0 April sales 258,400 904,400 129,200 May sales 0 391,400 1,369,900 June sales 0 0 201,400 Total cash collections 885,400 $ 1,377,500 $ 1,700,500 $ $ 55,100 653,600 1,292,000 1,761,300 201,400 $ 3,963,400
Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Req 1D Req 2 Req 3 Req 4 Prepare a master budget for the three-month period ending June 30 that includes a merchandise purchases budget in un and in dollars. Show the budget by month and in total. (Round unit cost to 2 decimal places.) Earrings Unlimited Merchandise Purchases Budget April June Quarter Budgeted unit sales Add: Desired ending merchandise inventory Total needs Less: Beginning merchandise inventory Required purchases Unit cost Required dollar purchases 68,000 41,200 109,200 27,200 82,000 5.50 $ $ 451,000 May 103,000 21,200 124,200 41,200 83,000 $ 5.50 $ 456,500 53,000 13,200 66,200 21,200 45,000 $ 5.50 $ 247,500 224,000 13,200 237,200 27,200 210,000 $ 5.50 $ 1,155,000
Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Req 1D Req 2 Req 3 Req 4 Req 1D Prepare a master budget for the three-month for merchandise purchases, by month and in total. ending June 30 that includes a schedule of expected cash disbursements Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June 0 115,000 Quarter $ 115,000 451,000 456,500 225,500 225,500 228,250 0 123,750 340,500 453,750 1,146,250 Accounts payable April purchases May purchases June purchases Total cash payments $ $ 0 228,250 123,750 352,000
ces Prepare a master budget for the three-month period ending June 30 that includes a cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $65,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Earrings Unlimited Cash Budget For the Three Months Ending June 30 April June Quarter Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Total financing 0 0 0 0 May 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach. Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Variable expenses: Fixed expenses: 0 0 0 0 0
4. A budgeted balance sheet as of June 30. Earrings Unlimited Budgeted Balance Sheet June 30 Assets Liabilities and Stockholders' Equity Total assets Total liabilities and stockholders' equity