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 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-$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) February (actual) March (actual) April (budget) May (budget) 21,400 June (budget) 27,400 July (budget) 41,400 August (budget) 66,400 September (budget) 26,400 51,400 31,400 29,400 101,400 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 $4.70 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:

Explanation / Answer

3) INCOME STATEMENT

SALES

2849600

COST OF SALES

1030240

COMMISSIONS

114034

CONTRIBUTIONS

1705326

LESS EXPENSES

FIXED EXPENSES

1287600

DEP

63000

1350600

354726

LESS DIVIDENDS

20250

RETAINED EARNINGS

334476

E)

CASH BUDGET

APR

MAY

JUN

TOTAL

CASH RECEIPTS

585000

921700

1142700

2649400

CASH OUTFLOWS

FIXED

429200

429200

429200

1287600

NEW EQUIPMENT

0

19500

47000

66500

DIVIDENDS

20250

0

0

20250

SALES COMM

34528

52728

26728

114034

483978

501428

502928

1488384

NET

101022

420272

639772

1161016

B/F

81000

182022

602294

1242066

C/F

182022

602294

1242066

2403082

C) & D)

MERCHANDISE PURCHASE BUDGET

APR

MAY

JUN

TOTAL

FINISHED GOODS BUDGET UNITS

OP STOCK

26560

40560

20560

87680

PURCHASES

80400

81400

43400

205200

CL STK

40560

20560

12560

73680

= COST OF SALES

66400

101400

51400

219200

$$

$

$

$

MAR DUE

133950

133950

APR DUE

188940

188940

377880

MAY DUE

191290

191290

382880

JUN DUE

101990

101990

996700

B)

EXPECTED CASH COLLECTIONS

APR

MAY

JUN

TOTAL

FEB DUE

35620

MAR DUE

376740

53820

APR DUE

172640

604240

86320

MAY DUE

263640

922740

JUN DUE

133640

TOTAL COLECT FOR MTH

585000

921700

1142700

2649400

SALES BUDGET

APR

MAY

JUN

TOTAL

UNITS

66400

101400

51400

219200

X $13

863200

1318200

668200

2849600

SALES

2849600

COST OF SALES

1030240

COMMISSIONS

114034

CONTRIBUTIONS

1705326

LESS EXPENSES

FIXED EXPENSES

1287600

DEP

63000

1350600

354726

LESS DIVIDENDS

20250

RETAINED EARNINGS

334476

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