You have just been hired as a new management trainee by Earrings Unlimited, a di
ID: 2555568 • 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—$15 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 $4.5 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.
The company plans to purchase $18,500 in new equipment during May and $45,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $18,750 each quarter, payable in the first month of the following quarter.
The company maintains a minimum cash balance of $55,000. 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 $55,000 in cash.
A sales budget, by month and in total.
B.
A schedule of expected cash collections from sales, by month and in total.
A merchandise purchases budget in units and in dollars. Show the budget by month and in total. (Round "Unit cost" answers to 2 decimal places.) Part C.
A schedule of expected cash disbursements for merchandise purchases, by month and in total.
A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $55,000 (Cash deficiency, repayments and interest should be indicated by a minus sign.)
A budgeted income statement for the three-month period ending June 30. Use the contribution approach.Question 3
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.
Explanation / Answer
Earrings Unlimited 1 Monthly Sales Budgets April May June Total Sales in units 66000 101000 51000 218000 Sales price 15 15 15 Sales Revenue in 990000 1515000 765000 3270000 2 Monthly Mechandise Purchase Budgets April May June Total Beginning Inventory of merchandise A 26400 40400 20400 26400 Units to be sold B 66000 101000 51000 218000 Ending Inventory of merchandise C 40400 20400 12400 12400 Mechandise to be purchased C+B-A 80000 81000 43000 204000 Purchase price 4.5 4.5 4.5 4.5 Purchase Value 360000 364500 193500 918000 3 Calculation of cash receipts from customers Monthly Sales Budgets April May June Total Sales Revenue in 990000 1515000 765000 3270000 Collected in Accounts Receivable -April 1 471000 61500 532500 Credit sales from April 198000 693000 99000 990000 May 303000 1060500 1363500 June 153000 153000 Total collection of receivables 669000 1057500 1312500 3039000 4 Calculation of payment to suppliers April May June Total Total cost of purchases 360000 364500 193500 918000 Accounts Payable-April 1 105000 105000 April 180000 180000 0 360000 May 182250 182250 364500 June 96750 96750 Total cash paid for merchandise 285000 362250 279000 926250 5 Cash Budget April May June Total Beginning Balance 79000 55650 216800 79000 Cash receipts from customers 669000 1057500 1312500 3039000 Total cash available 748000 1113150 1529300 3118000 Cash payments Disbursement to suppliers in cash 285000 362250 279000 926250 Dividends 18750 18750 Equipement purchase 18500 45000 63500 Variable Sales commissions 39600 60600 30600 130800 Fixed cash operating Income 402000 402000 402000 1206000 Total cash payments 745350 843350 756600 2345300 Surplus/(Deficiet) 2650 269800 772700 772700 Minimum Cash balance required 55000 55000 55000 55000 Borrowing(Repayment) of Loan 53000 -53000 0 0 Interest paid 1590 1590 Ending Cash balance 55650 216800 771110 771110 As per Chegg Policy, we are supposed to answer the maximum of four sub-parts a question. Thank You
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