Question

Check my work 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 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. The company sells many styles of earrings, but all are sold for the same price-$11 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) 20, 202 26,208 40,200 65,208 100, 200 June (budget) July (budget) August (budget) September (budget) 5e, zee 30,200 28, 2ee 25, 2ee 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 $4.10 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 Prev 1 of 1 Next 26 PM

can you please answer this and show me how you arrived at the answer. thanks

Answer 1

Solution:

It is given in the sum that all sales are on credit. 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.

Therefore, Jan month sales amount 20% (20% *20200 = 4,040) is collected on Jan itself and 70% of Jan months sale amount (70% * 20200 = 14,140) is collected on Feb and remaining 10% sales amount (10% *2,020) is collected on March.

Feb month sales amount is $26,200. Collection of Feb month sales amount will be as follows.

Collection on Feb month = 20% * 26200 = $5,240.00

Collection on March month = 70% * 26200 = $18,340.00

Collection on April month = 10% * 26200 = $2,620.00

March month sales amount is $40,200.00

Collection on March month = 20% * 40200 = $8,040.00

Collection on April month = 70% * 40200 = $28,140.00

Collection on May month = 10% * 40200 = $4,020.00

April month sales amount is $65,200.00

Collection on April month = 20% * 65200 = $13,040.00

Collection on May month = 70% * 65200 = $45,640.00

Collection on June month = 10% * 65200 = $6,520.00

May month sales amount is $100,200.00

Collection on May month = 20% * 100200 = $20,040.00

Collection on June month = 70% * 100200 = $70,140.00

Collection on July month = 10% * 100200 = $10,020.00

June month sales amount is $50,200.00

Collection on June month = 20% * 50200 = $10,040.00

Collection on July month = 70% * 50200 = $35,140.00

Collection on August month = 10% * 50200 = $5,020.00

Master budget for the three-month period ending June 30 that includes a schedule of expected cash collections, by month and in total.

Earrings Unlimited
Schedule for Expected Cash Collections
	April	May	June	Quarter
February sales	2,620			$2,620
March sales	28,140	4,020		$32,160
April sales	13,040	45,640	6,520	$65,200
May sales		20,040	70,140	$90,180
June sales			10,040	$10,040
Total Cash Collections	$43,800	$69,700	$86,700	$200,200