Budgeting Project Question 2 (of 2) 2 You have just been hired as a new manageme

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Budgeting Project Question 2 (of 2) 2 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-$19 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) 23,000 June (budget) 29,000 July (budget) 43,000 August (budget) 68,000 September (budget) 53,000 33,000 31,000 28,000 103,000 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 $5.5 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 4% of sales Sales commissions Fixed

Explanation / Answer

SALES BUDGET APRIL MAY JUNE QUARTER JULY Budgeted Sales units 68,000 103,000 53,000 224,000 33,000 Selling price per unit 19 19 19 19 19 Total Sales 1,292,000 1,957,000 1,007,000 4,256,000 627,000 EXPECTED CASH COLLECTIONS April May June QUARTER Feb Month Sales 55,100 55,100 March Month sales 571,900 81700 653,600 April month sales 258400 904400 129200 1,292,000 May month sales 391,400 1,369,900 1,761,300 June month sales 201400 201,400 Total Cash Collections 885,400 1,377,500 1,700,500 3,963,400 RAW MATERIAL PURCHASE BUDGET April May June QUARTER July Budgeted Sales 68,000 103,000 53,000 224,000 33,000 Add: Desired Ending Inventory 41,200 21,200 13,200 13,200 Total needs 109,200 124,200 66,200 237,200 Less: Beginning Inventory 27,200 41,200 21,200 27,200 Budgeted Purchases in units 82,000 83,000 45,000 210,000 Budgeted Cost per unit 5.50 5.50 5.50 5.50 Budgeted purchases in $ 451,000 456,500 247,500 1,155,000 EXPECTED CASH PAYMENTS April May June Quarter Beginning Accounts payable 115,000 115,000 April Month purchase 225,500 225500 451,000 May month Purchase 228250 228250 456,500 June month purchase 123750 123,750 Total Cash disbursement 340,500 453,750 352,000 1,146,250

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