You have just been hired as a new management trainee by Earrings Unlimited, a di
ID: 2594646 • 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 $18 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) 23,800 June (budget) 29,800 July (budget) 3,800 August (budget) 68,800 September (budget) 103,800 53,800 33,800 31,800 28,800 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 ear ngs sold in the following month. Suppliers are paid $5.9 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 ound, however, that only 20% o a month's sales are collected n the on of sale. An addit na 70% scollected in the ollowing month, and he remaining Sis collected in the second month following sale. Bad debts have been negligible.Explanation / Answer
April
May
June
Total
Estimated sales in units
68,800
103800
53800
226,400
Selling price per unit
18
18
18
18
Budgeted sales
1,238,400
1,868,400
968,400
4,075,200
Estimated sales in units
68,800
103800
53800
226,400
Add: ending inventory
41,520
21,520
13,520
13,520
Less: Opening inventory
(27,520)
(41,520)
(21,520.0)
(27,520)
Number of units to be purchased
82,800
83,800
45,800
212,400
Cost per unit
5.9
5.9
5.9
5.9
Total cost of purchases
488,520
494,420
270,220
1,253,160
March
158,710
April
244,260
244,260.0
247,210.0
May
247,210
247,210.0
June
135,110
Paid to supplier
402,970
491,470
629,530
Collections from customers:
April
247,680
866,880
123,840
May
373,680
1,307,880
June
193,680
March
551,880
78840
Feb
53,640
Total collections
853,200
1,319,400
1,625,400
April
May
June
Beginning cash balance
93,000
69,000
69,000
Cash receipts from customers
853,200
1,319,400
1,625,400
Total cash available
946,200
1,388,400
1,694,400
Less: Cash disbursements:
Payments for merchandise
(402,970)
(491,470)
(629,530)
Variable expenses
(49,536)
(74,736)
(38,736)
Fixed expense
(587,500)
(587,500)
(587,500)
Dividend paid
(29,250)
Purchase of equipment
-25500
-59000
Total cash disbursements
(1,069,256)
(1,179,206)
(1,314,766)
Excess of receipts over disbursements
(123,056)
209,194
379,634
Add: borrowed loan
192,056
Less: Repayment of loan
(140,194)
(51,862)
Less: Interest paid on loan
-4,360
Ending cash balance
69,000
69,000
323,412
Interest on loan :
140,194*1%*2months = $2,804
51,862*1%*3months = $1,556
Total interest = $4,360
April
May
June
Total
Estimated sales in units
68,800
103800
53800
226,400
Selling price per unit
18
18
18
18
Budgeted sales
1,238,400
1,868,400
968,400
4,075,200
Estimated sales in units
68,800
103800
53800
226,400
Add: ending inventory
41,520
21,520
13,520
13,520
Less: Opening inventory
(27,520)
(41,520)
(21,520.0)
(27,520)
Number of units to be purchased
82,800
83,800
45,800
212,400
Cost per unit
5.9
5.9
5.9
5.9
Total cost of purchases
488,520
494,420
270,220
1,253,160
March
158,710
April
244,260
244,260.0
247,210.0
May
247,210
247,210.0
June
135,110
Paid to supplier
402,970
491,470
629,530
Collections from customers:
April
247,680
866,880
123,840
May
373,680
1,307,880
June
193,680
March
551,880
78840
Feb
53,640
Total collections
853,200
1,319,400
1,625,400
April
May
June
Beginning cash balance
93,000
69,000
69,000
Cash receipts from customers
853,200
1,319,400
1,625,400
Total cash available
946,200
1,388,400
1,694,400
Less: Cash disbursements:
Payments for merchandise
(402,970)
(491,470)
(629,530)
Variable expenses
(49,536)
(74,736)
(38,736)
Fixed expense
(587,500)
(587,500)
(587,500)
Dividend paid
(29,250)
Purchase of equipment
-25500
-59000
Total cash disbursements
(1,069,256)
(1,179,206)
(1,314,766)
Excess of receipts over disbursements
(123,056)
209,194
379,634
Add: borrowed loan
192,056
Less: Repayment of loan
(140,194)
(51,862)
Less: Interest paid on loan
-4,360
Ending cash balance
69,000
69,000
323,412
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.