You have just been hired as a new management trainee by Earrings Unlimited, a di

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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 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-$12 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) 20,400 June (budget) 26,400 July (budget) 40,400 August (budget) 65,400 September (budget) 25,400 100,400 50,400 30,400 28,400 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 $4.2 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, 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 negligibl ible Monthly operating expenses for the company are given below: Variable Sales commissions 4% of sales Fixed Advertising Rent Salaries Utilities Insurance Depreciation $ 220,000 $20,000 110,000 $ 8,000 $ 3,200 $ 16,000 Insurance is paid on an annual basis, in November of each year The company plans to purchase $17,000 in new equipment during May and $42,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $16,500 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 Accounts receivable ($31,680 February sales; $387,840 March sales) Inventory Prepaid insurance Property and equipment (net) $ 76,000 419,520 109,872 22,000 970,000 Total assets $ 1,597,392 Liabilities and Stockholders' Equity Accounts payable Dividends payable Common stock Retained earnings $102,000 16,500 840,000 638,892 Total liabilities and stockholders' equity $ 1,597,392

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You have just been hired as a new management trainee by Earrings Unlimited, a di

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