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 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):

  January (actual)

20,000

  June (budget)

50,000

  February (actual)

26,000

  July (budget)

30,000

  March (actual)

40,000

  August (budget)

28,000

  April (budget)

65,000

  September (budget)

25,000

  May (budget)

100,000

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.

    Monthly operating expenses for the company are given below:

  Variable:

     Sales commissions

4%

of sales

  Fixed:

     Advertising

$

200,000

     Rent

$

18,000

     Salaries

$

106,000

     Utilities

$

7,000

     Insurance

$

3,000

     Depreciation

$

14,000  

Insurance is paid on an annual basis, in November of each year.

     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.

     A listing of the company’s ledger accounts as of March 31 is given below:

Assets

  Cash

$

74,000

  Accounts receivable ($26,000 February sales;    $320,000 March sales)

346,000

  Inventory

104,000

  Prepaid insurance

21,000

  Property and equipment (net)

950,000

  Total assets

$

1,495,000

Liabilities and Stockholders’ Equity

  Accounts payable

$

100,000

  Dividends payable

15,000

  Common stock

800,000

  Retained earnings

580,000

  Total liabilities and stockholders’ equity

$

1,495,000

     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!

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.

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

January February March April May June July August September Sales - Qty Nos            20,000            26,000                40,000            65,000              100,000            50,000            30,000            28,000            25,000 Sale price $/unit                     10                     10                        10                    10                        10                    10                    10                    10                    10 Sales Value $          200,000          260,000              400,000          650,000          1,000,000          500,000          300,000          280,000          250,000 Inventory required at the month end Value $          104,000          160,000              260,000          400,000              200,000          120,000          112,000          100,000                     -   (40% of Earning required in Next month) NO. of units required for inventory Nos            10,400            16,000                26,000            40,000                20,000            12,000            11,200            10,000 Material Cost @ $4 per unit Value $            80,000          104,000              160,000          260,000              400,000          200,000          120,000          112,000          100,000 Monthly Purchase qty required Nos            30,400            31,600                50,000            79,000                80,000            42,000            29,200            26,800            15,000 Sale+ closing stock-Opening stock Monthly Purchase Value @ $ 4 per unit Value $          121,600          126,400              200,000          316,000              320,000          168,000          116,800          107,200            60,000 b) Expected Cash Collection from Sales Earning Unlimited Schedule for Expected cash collection April May June Quarter $ $ $ $ February Sales            26,000                26,000 March Sales          280,000            40,000              320,000 April Sales          130,000          455,000            65,000              650,000 May Sales          200,000          700,000              900,000 June Sales          100,000              100,000 Total Cash Collection          436,000          695,000          865,000          1,996,000 c) Merchandise purchase budget in unit & Dollars Earning Unlimited Merchandise Purchase Budget April May June Quarter $ $ $ $ Budgeted sales unit            65,000          100,000            50,000              215,000 Add:- Desired 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 Purchase            79,000            80,000            42,000              201,000 Unit cost 4 4                       4                           4 Required Dollar Purchases          316,000          320,000          168,000              804,000 d) Cash Disbursement payable to vendor Earning Unlimited Schedule for Expected cash Disbursement April May June Quarter $ $ $ $ Account payable          100,000              100,000 April Purchase          158,000          158,000              316,000 May Purchase          160,000          160,000              320,000 June Purchase            84,000                84,000 Total Cash payment          258,000          318,000          244,000              820,000 2. Cash Budget Earning Unlimited Cash Budget For three month ending on June 30 April May June Quarter $ $ $ $ Beginning Cash Balance            74,000            50,280            50,440                74,000 Add:- Collection from Customer          436,000          695,000          865,000          1,996,000 Total Cash Available          510,000          745,280          915,440          2,070,000 Less:- Cash Disbursement Merchandise purchase          258,000          318,000          244,000              820,000 Advertising          200,000          200,000          200,000              600,000 Rent            18,000            18,000            18,000                54,000 Salaries          106,000          106,000          106,000              318,000 Commission (4% of Sales)            26,000            40,000            20,000                86,000 Utilities              7,000               7,000               7,000                21,000 Equipment purchases            16,000            40,000                56,000 Dividend paid ( for march qtr)            15,000                15,000 Total Cash Disbursement          630,000          705,000          635,000          1,970,000 Excess of Cash available over disbursement Financing : Borrowing          172,000            12,000              184,000 Repayment        (184,000)           (184,000) Interest            (1,720)            (1,840)            (1,840)                (5,400) Total Financing          170,280            10,160        (185,840)                (5,400) Ending Cash Balance            50,280            50,440            94,600                94,600 3. Budgeted Income Statement for three month period ending on June 30 Earning Unlimited Budgeted Income Statement For three months ending June 30 $ $ Variable Expenses Material Expenses          860,000 Selling Commission            86,000 Total Variable Exp          946,000 Fixed Expenses Advertising          600,000 Rent            54,000 Salaries          318,000 Utilities            21,000 Depreciation            42,000 Insurance              9,000 total Fixed Exp      1,044,000 Interest on Loan              5,400               5,400 Total Expenses      1,995,400 Sales Revenue      2,150,000      2,150,000 Profit          154,600 Less:- Dividend            15,000 Profit Transferred to retained earning          139,600 4. Budgeted Balance sheet as on June 30 Earning Unlimited Budgeted Balance sheet as on June 30 $ Asset Cash            94,600 Account receivable (may sale 10% and June Sale 80%          500,000 Inventory          120,000 Prepaid Insurance            12,000 Property equipment (net)          892,000 Total Asset      1,618,600 Liabilites and stock holder's equity Account payable            84,000 Dividend payable            15,000 Common Stock          800,000 Retained Earning          719,600 Total Liabilites and Stock holder's equity      1,618,600

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