You have just been hired as a new management trainee by Earrings Unlimited, a di
ID: 2552278 • 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 mals 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 15 points The company sells many styles of earrings, but all are sold for the same price-$14 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (n pairs of earrings): January (actual) February (actual1) 27,600 July (budget) March (actual) April (budget ) Hay (budget) 1,600 31,600 29,600 21,600 June (budget ) 41,600 August (budget ) 66,600 September (budget) 26,600 101,600 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 $4.80 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 negligibleExplanation / Answer
Solution:
Part 1(a) --- Sales Budget
Sales Budget
April
May
June
Quarter
Expected Unit Sales
66,600
101,600
51,600
219,800
Unit Selling Price
$14
$14
$14
$14
Budgeted Sales in dollars
$932,400
$1,422,400
$722,400
$3,077,200
Part 1(b) – Schedule of Expected Cash Collection
Schedule of Expected Cash Collection
April
May
June
Quarter
February Sales
$38,640
March Sales
$407,680
$58,240
April Sales
$186,480
$652,680
$93,240
May Sales
$284,480
$995,680
June Sales
$144,480
Total Cash Collections
$632,800
$995,400
$1,233,400
$2,861,600
Accounts Receivable Feb Sales $38,640 – it represent the portion of 10% which receive in April.
Accounts Receivable March Sales $465,920 --- It shows the 80% potion of total sales which will be received in April and May.
So, the March Total Sales Value = $465,920 / 80% = $582,400
Collection in April = 582,400*70% = $407,680
Collection in May = 582,400*10% = $58,240
Part 1© -- Merchandise Purchase Budget
Merchandise Purchase Budget
April
May
June
Quarter
July
Budgeted Sales Units
66600
101600
51600
31600
Add: desired ending inventory (40% of next months sales unit)
40640
20640
12640
11840
Total needs
107240
122240
64240
43440
Less: Beginning Inventory (Ending inventory of last month)
26640
40640
20640
12640
Required purchases in units
80600
81600
43600
205800
30800
Cost per pair
$4.80
$4.80
$4.80
$4.80
Budgeted Purchases in dollars
$386,880
$391,680
$209,280
$987,840
Part 1(d) – Schedule of Expected Cash Disbursement for Merchandise Purchases
Expected Cash Disbursement - Merchandise Purchase
April
May
June
Quarter
Beginning Accounts Payable
$108,000
April Purchases
$193,440
$193,440
May Purchases
$195,840
$195,840
June Purchases
$104,640
Total Cash disbursements
$301,440
$389,280
$300,480
$991,200
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining parts.
Sales Budget
April
May
June
Quarter
Expected Unit Sales
66,600
101,600
51,600
219,800
Unit Selling Price
$14
$14
$14
$14
Budgeted Sales in dollars
$932,400
$1,422,400
$722,400
$3,077,200
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