Building Your Skills Case [LO8-2, Lo8-4, LO8-8, LO8-9, LO8-10 You have just been

Question

Building Your Skills Case [LO8-2, Lo8-4, LO8-8, LO8-9, LO8-10 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-$16 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings): anuary (actual) February (actual) March (actual) April (budget) May (budget) 23,400 June (budget) 29,400 July (budget) 43,400 August (budget) 68,400 September (budget)28,400 103,400 53,400 33,400 31,400 The concentration of sales before and during May is due to Mothers 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 $5.70 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 Varlables Sales commissions 4% of sales r ixedi Advertising Rent Salarler utilities insur ance 378,0ee 5 35,000 140,000 15,500 4,700 5 31,000 Deprectation

Explanation / Answer

Per Chegg guidelines, first 4 sub-parts have been answered.

1a. Earrings Unlimited Sales Budget April May June Quarter Budgeted sales units 68400 103400 53400 225200 Selling price per unit $ 16 16 16 16 Total sales $ 1094400 1654400 854400 3603200 1b. Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter February sales 47040 47040 March sales 486080 69440 555520 April sales 218880 766080 109440 1094400 May sales 330880 1158080 1488960 June sales 170880 170880 Total cash collections $ 752000 1166400 1438400 3356800 1c. Earrings Unlimited Merchandise Purchases Budget April May June Quarter Budgeted unit sales 68400 103400 53400 225200 Add: Desired ending merchandise inventory 41360 21360 13360 13360 Total needs 109760 124760 66760 238560 Less: Beginning merchandise inventory 27360 41360 21360 27360 Required purchases 82400 83400 45400 211200 Unit cost $ 5.70 5.70 5.70 5.70 Required dollar purchases $ 469680 475380 258780 1203840 1d. Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June Quarter Accounts payable 117000 117000 April purchases 234840 234840 469680 May purchases 237690 237690 475380 June purchases 129390 129390 Total cash payments $ 351840 472530 367080 1191450

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