I need to create -a sales budget -a productions budget -a raw materials budget -

Question

I need to create

-a sales budget

-a productions budget

-a raw materials budget

-a direct labor budget

-a manufacturing overhead budget

-selling and admin expense budget

-cash budget

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—$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

Required Budgets are as prepared below:

1a Earings unlimited Sales Budget For the quarter ended June 30 Month Particulars April May June Total Budgeted Unit sales 65,000 100,000 50,000 215,000 Sale Price 10 10 10 10 Budgeted sales 650,000 1,000,000 500,000 2,150,000 1b. Earings unlimited Schedule of expected Cash collections For the quarter ended June 30 Month Particulars April May June Total Beginning Accounts Receivable February sales (26,000*10*10%) 26,000 26,000 March sales (40,000*10*70%) 280,000 280,000 March sales (40,000*10*10%) 40,000 40,000 April Credit Sales 130,000 455,000 65,000 650,000 May Credit Sales 200,000 700,000 900,000 June Credit sales 100,000 100,000 Total collections 436,000 695,000 865,000 1,996,000 Account receivable for June Sale 400,000 Account receivable for May Sale 100,000 1c. Earings unlimited Merchandise Purchase Budget For the quarter ended June 30 Month Particulars April May June Total Budgeted Unit Sales 65,000 100,000 50,000 215,000 Add: Desired Ending merchandise inventory (40% of next month sales) 40,000 20,000 12,000 12,000 Total needs 105,000 120,000 62,000 227,000 Less: beginning merchandise inventory 26,000 40,000 20,000 26,000 Required purchase 79,000 80,000 42,000 201,000 Unit Cost 4.0 4.0 4.0 4.0 Required dollar purchases $316,000 $320,000 $168,000 $804,000 1d. Earings unlimited Schedule of expected Cash payments For the quarter ended June 30 Month Particulars April May June Total Beginning Accounts Payable (a) $100,000 $100,000 April Purchases (b) $158,000 $158,000 $316,000 May Purchases (c ) $160,000 $160,000 $320,000 June Purchases (d) $84,000 $84,000 Total payments (a+b+c+d) $258,000 $318,000 $244,000 $820,000 Earings unlimited Commission For the quarter ended June 30 Month Particulars April May June Total Budgeted Unit sales 65,000 100,000 50,000 215,000 Sale Price 10 10 10 10 Budgeted sales 650,000 1,000,000 500,000 2,150,000 Sales commisssions (4% of sales) 26,000 40,000 20,000 86,000 2 Earings unlimited Cash Budget For the quarter ended June 30 Month Particulars April May June Total Beginning Cash balance 74,000 50,000 50,000 74,000 Add: Collection from customers $436,000 $695,000 $865,000 $1,996,000 cash available for use $510,000 $745,000 $915,000 $2,070,000 Less: cash Disbursements Merchandise purchase $258,000 $318,000 $244,000 820,000 Advertising 200,000 200,000 200,000 600,000 Rent 18,000 18,000 18,000 54,000 Salaries 106,000 106,000 106,000 318,000 Commissions 26,000 40,000 20,000 86,000 Utilities 7,000 7,000 7,000 21,000 Equipment purchase 16,000 40,000 56,000 Dividend paid 15,000 15000 Total disbusrement 630,000 705,000 635,000 1,970,000 Cash surplus/Deficit -120,000 40,000 280,000 100,000 Financing    Borrowing 170,000 10,000 180,000    Repayment -180,000 -180,000    Interest -3,500 -3,500 Net cash from Financing 170,000 10,000 -183,500 -3,500 Budgeted ending cash balance 50,000 50,000 96,500 96,500 Earings Unlimited Budgeted Income Statement For the three month ended June 30 Particulars Amount ($) Amount ($) Sales 2,150,000 Less: Cost of goods sold (215,000*4) 860,000 Variable expenses: Commissions 86,000 Interest expense 3,500 Insurance (3,000*3) 9,000 98,500 Contribution Margin 1,191,500 Fixed Expenses: Advertising 600,000 Rent 54,000 Salaries 318,000 Depreciation (14,000*3) 42,000 Utilities 21,000 1,035,000 Net operating Income 156,500 Dividend Paid 15,000 Net Income 141,500 Earings Unlimited Budgeted balance Sheet Jun-30 Assets Cash 96,500 Accounts Receivable 500,000 Inventory (12,000*4) 48,000 Property and equipment Net (950,000+16,000+40,000-42,000) 964,000 Prepaid insurance (21,000-9,000) 12,000 Total assets 1,620,500 Liabilities and Stockholders' Equity Accounts Payable purchases 84,000 Dividend payable 15,000 Common Stock 800,000 Retained earnings (580,000+141,500) 721,500 Total liabilities and stockholders' equity 1,620,500

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