I need help creating the budgeting assumptions and corresponding tables for this
ID: 2569358 • Letter: I
Question
I need help creating the budgeting assumptions and corresponding tables for this question, see attached PDF contents below for requirements:
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
Febuary (actual)... 26,000
March (actual)... 40,000
April (budget) 65,000
May (budget)... 100,000
June (budget)... 50,000
July (budgett)... 30,000
August (budget)...28,000
September (budget) 25,000
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 commision 4% of sales
Fixed:
advertising... 200,000
Rent... 18,000
Salaries... 106,000
utiliries... 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... 74000
Accounts recivable (26,000 february sales $320,000 March sales)... 346,000
Inventory.... 104,000
prepaid insurance... 21,000
Property and equipment... 950000
Total assets... 1,495,000
Liabilities
Accounts pay... 100,000
dividents pay.... 15,000
capital stock... 800,000
retained earnings... 580,000
Total liabilities... 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
Explanation / Answer
Budgeted Cash Receipt April May June Qtr February March July August Sales in units A 65000 100000 50000 140000 26000 40000 30000 28000 Sale Price 10 10 10 10 10 10 10 10 Total sales 650000 1000000 500000 2150000 260000 400000 300000 280000 Schedule of Cash collection Feb sales 26000 26000 Marc sales (70%,10% of $216000) 280000 40000 320000 April sales (20%,70%,10%) 130000 455000 65000 650000 May Sales 200000 700000 900000 June sales 100000 100000 Total cash collections 436000 695000 865000 1996000 Accounts Receivable 500000 Purcahse Budget April May June Total July Budgeted sales in units 65000 100000 50000 140000 30000 Closing Inventory 40% of next month sales S*.4 40000 20000 12000 12000 Total needs 105000 120000 62000 152000 Less: Beginning Inventory 26000 40000 20000 26000 Units to be produced 79000 80000 42000 201000 Purchase Price 4 4 4 4 Total Purchase price A 316000 320000 168000 804000 COGS= Units sold*4 260000 400000 200000 560000 Cash Disbursement Schedule From march purchases 100000 100000 From April Purchases 158000 158000 316000 From May Purchases 160000 160000 320000 From June purchases 84000 84000 Total B 258000 318000 244000 820000 Accounts payable as on 30 June 84000 working Cash payments payment of Inventory 258000 318000 244000 820000 Sales Commissions 4% 26000 40000 20000 86000 Advertising 200000 200000 200000 600000 Rent 18000 18000 18000 54000 Salaries 106000 106000 106000 318000 Utilities 7000 7000 7000 21000 Dividend Paid 15000 15000 Equipment 16000 40000 56000 Cash Budget April May J June Total Beginning Cash balance 74000 $50,000 $50,000 74000 Cash receipt 436000 695000 865000 1996000 Total cash available 510000 745000 915000 2070000 Less: Cash Disbursements payment of Inventory 258000 318000 244000 820000 Sales Commissions 4% 26000 40000 20000 86000 Advertising 200000 200000 200000 600000 Rent 18000 18000 18000 54000 Salaries 106000 106000 106000 318000 Utilities 7000 7000 7000 21000 Dividend Paid 15000 0 0 15000 Equipment 0 16000 40000 56000 Total cash Disbursements $6,30,000 $7,05,000 $6,35,000 $19,70,000 Excess /(deficiency) of cash receipts over cash disbursements ($1,20,000) $40,000 $2,80,000 $1,00,000 Minimum Cash balance (working) 50000 50000 50000 50000 Financing Borrowed 170000 10000 $1,80,000 Repaid -180000 ($1,80,000) Interest Repaid -5300 ($5,300) Total Financing 170000 10000 -185300 -5300 Ending Cash balance $50,000 $50,000 $94,700 $94,700 Interest On Short Term Loan (170000*3%)+(10000*2%)=5300
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