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

ID: 2479032 • Letter: Y

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 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—$10 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 $4 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 negligible.

The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.

The company maintains a minimum cash balance of $50,000. 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 $50,000 in cash.

I need the below filled in correctly please.

Thank you!

b. A schedule of expected cash collections from sales, by month and in total Schedule of Expected Cash Collections June Quarter February sales March sales Apil sales May sales June sales Total cash collections 26,000 280,000 30,000 26.000 320,000 650,000 900,000 100,000 865,000 $ 1,996,000 40,000 455,000 200,000 65.000 700,000 100,000 $ 436,000 $ 695,000 S c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. ngs Merchandise Purchases Budget May June Quater Budgeted unit sales Add: Desired ending merchandise inventory Total needs Less: Beginning merchandise inventory Required purchases Unit cost Required dollar purchases 65,000 100,000 50,000 215,000 65,000 100,000 50,000 215,000 65,000 100,000 50,000 215,000

Explanation / Answer

SALES BUDGET April May June Quarter Budgeted unit sales 65000 100000 50000 215000 Selling price per unit 10 10 10 10 Total Sales 650000 1000000 500000 2150000 SCHEDULE OF EXPECTED CASH COLLECTIONS: Workings April May June Quarter February sales 260,000 10% 26000 26000 March sales 400,000 70/10% 280000 40000 320000 April sales 650,000 70/10% 130000 455000 65000 650000 May sales 1,000,000 20/70% 200000 700000 900000 June sales 500,000 20% 100000 100000 Total Cash Collections 436000 695000 865000 1996000 MERCHANDISE PURCHASES BUDGET: April May June Quarter Budgeted unit sales 65000 100000 50000 215000 Add desired ending inventory 40% of Nest month sales 40000 20000 86000 0 Total needs 105000 120000 136000 215000 Less beginning inventory 26000 40000 20000 26000 Required purchases 79000 80000 116000 189000 Cost of purchases @ $4 per unit 316000 320000 464000 756000 BUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES: April May June Quarter Accounts payable 100000 100000 April purchases 158000 158000 316000 May purchases 160000 160000 320000 June purchases 84000 84000 Total cash payments 258000 318000 244000 820000 CASH BUDGET FOR THE THREE MONTHS ENDING JUNE 30 April May June Quarter Cash balance 74000 50000 50000 94700 Add collections from customers 436000 695000 865000 1996000 Total cash available 510000 745000 915000 2090700 Less Disbursements Merchandise purchases 258000 318000 244000 820000 Advertising 200000 200000 200000 600000 Rent 18000 18000 18000 54000 Salaries 106000 106000 106000 318000 Commissions 26000 40000 20000 86000 Utilities 7000 7000 7000 21000 Equipment purchases 16000 40000 56000 Dividends paid 15000 15000 Total Disbursements 630000 705000 635000 1970000 Excess (deficiency) of receipts over disbursements -120000 40000 280000 120700 Financing: Borrowings 170000 10000 180000 Repayments -180000 -180000 Interest -5300 -5300 Total financing 170000 10000 -185300 -5300 Cash balance, ending 50000 50000 94700 94700 BUDGETED INCOME STATEMENT FOR THE THREE MONTHS ENDED JUNE 30 Sales 2150000 Variable expenses: Cost of goods sold 215000*4 per unit 860000 Commissions 86000 946000 Contribution Margin Fixed expenses: Advertising 600000 Rent 54000 Salaries 318000 Utilities 21000 Insurance 9000 Depreciation 42000 1044000 Net operating income 160000 Interest expense -5300 Net income 154700 BUDGETED BALANCE SHEET JUNE 30 Assets: 94,700 Cash 5,00,000 Accounts receivable (see below) 48,000 Inventory 12,000 Prepaid insurance 9,64,000 Property and equipment, net 16,18,700 Total assets Liabilities and Stockholders' Equity Accounts payable, purchases 84,000 Dividends payable 15,000 Capital stock 8,00,000 Retained earnings (see below) 7,19,700 Total liabilities and stockholders' equity 16,18,700 Accounts receivable at June 30: May sales x 10% x $10 1,00,000 June sales x 80% x $10 4,00,000 Retained earnings at June 30: Balance, March 31 580000 Add net income 154700 Total 734700 Less dividends declared 15000 Balance, June 30 719700

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

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