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

MERCHANDISE PURCHASES BUDGET: April May June Quarter Budgeted unit sales 65,000 100,000 50,000 215,000 Add desired ending inventory 40,000 20,000 12,000 12,000 Total needs 105,000 120,000 62,000 227,000 Less beginning inventory 26,000 40,000 20,000 26,000 Required purchases 79,000 80,000 42,000 201,000 Cost of purchases @ $4 per unit $316,000.00 $320,000.00 $168,000.00 $804,000.00 BUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES: April May June Quarter Accounts payable $100,000.00 $100,000.00 April purchases $130,000.00 $130,000.00 $260,000.00 May purchases $200,000.00 $200,000.00 $400,000.00 June purchases $100,000.00 $100,000.00 Total cash payments $230,000.00 $330,000.00 $300,000.00 $360,000.00

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