Question

Yes , unfortunetley this is all part of just ONE problem.

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 $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) January (actual) February (actual) March (actual) April (budget) May (budget) 21,000 27,000 41,000 66,009 181,000 June (budget) July (budget) August (budget) September (budget) 51.00 31.000 29,000 26.000 The concentration of sales before and during May is due to Mother's Day Suficient 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 $4.50 for a pair of earrings. One hair or a month's purchases is paid for in the month of purchase the other hair is paid for in the following month. All sales are on credit, only 20% of a month's dies 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. 4% of sales Variable: Sales commissions Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $ 250,000 $ 23,000 $ 116,000 $ 9,500 3,500 19,000

Answer 1

Earrings Unlimited Sales Budget Req 1a Budgeted unit sales Selling price per unit Calculation April Quarter April May June May June 66,000 101,000 218,000 51,000 15 15 15 15 1,515,000 990,000 3,270,000 -66,000*15 Total Sales 765,000 -101,000*15 =51,000*15 Schedule of expected cash collections Req 1b Calculation April 40,500 April -27,000*15*10% May June Quarter May June Feb sales 40,500 430,500 198,000 41,000*15*70% 41,000*15*10% Mar sales 61,500 492,000 =990,000*20% -990,000*70% 990,000*10% April sales 693,000 99,000 990,000 May sales -1,515,000*20% -1,515,000*70% 303,000 1,060,500 1,363,500 = 765,000*20% June sales 153,000 153,000 Total cash collections 3,039,000 669,000 1,057,500 1,312,500 Merchandise Purchases Budget Req 1c April April May June May Quarter June Budgeted unit sales Add Desired Ending Inventory 101,000 66,000 51,000 218,000 - 31,000*40% 40,400 20,400 - 101,000*40% -51,000*40% 12,400 12,400 Total Needs 63,400 106,400 121,400 230,400 End Inv of April End Inv of May Less Beginning Inventory 26,400 -66,000 40% 40,400 20,400 26,400 Required Purchases 80,000 81,000 43,000 204,000 Unit Cost 4.50 4.50 4.50 4.50 360,000 364,500 81,000*4.50 Required Dollar Purchases 193,500 918,000 80,000*4.50 43.000*4.50 Schedule of expected cash disbursements-Purchases Req 1d April April May June Quarter May June Accounts Payable 105,000 105,000 -360,000/2 -360,000/2 April Purchases 360,000 180,000 180,000 -364,500/2 -364,500/2 May Purchases 364,500 182,250 182,250 June Purchases -193,500/2 96,750 96,750 362,250 Total cash payments 285,000 279,000 926.250 Cash budget Req 2 April April May June Quarter May June 55,150 272,800 79,000 Beginning Cash balance 79,000 Add Collections from customers 669,000 1,057,500 1,312,500 3,039,000 1,585,300 Total cash available 748,000 1,112,650 3,118,000 Less cash disbursements Merchandise Purchases 285,000 926,250 362,250 279,000 Advertising 250,000 250,000 250,000 750,000 23,000 69,000 Rent 23,000 23,000 Salaries 116,000 116,000 116,000 348,000 -990,000*4% =765,000*4% 30,600 -1,515,000*4% Commissions 39,600 60,600 130,800 Utilites 9,500 9,500 28,500 9,500 Equipment purchases Dividends paid 18,500 45,000 63,500 18,750 18,750 Total Cash disbursements 741,850 753,100 839,850 2,334,800 Excess (deficiency) of cash 272,800 832,200 6,150 783,200 Financing =55,000-6,000 Borrowings 49,000 49,000 Round off cash of $6,150 to $6,000 for borrowings calculation 49,000*1% *3 (49,000) (49,000) Repayments Interest (1,470) (1,470) Total financing 49,000 (50,470) (1,470) Ending Cash balance 55,150 272,800 781,730 781,730

Income Statement Req 3 Sales 3,270,000 Variable expenses Cost of goods sold 981,000 -218,000*4.50 3,270,000*4% Commissions 130,800 Total variable expenses Contribution Margin 1,111,800 2,158,200 Fixed expenses Advertising 750,000 Rent 69,000 Salaries 348,000 Utilites 28,500 =3,500*3 Insurance 10,500 =19,000*3 Depreciation 57,000 Interest expense 168,000*1%*3 1,470 Total Fixed expenses 1,264,470 Net Income 893,730 Balance Sheet Req 4 Assets Current Assets Cash 781,730 =(1,515,000*10%)+(765,000* (70%+10%)) Accounts Receivable 763,500 55,800 12,400*4.50 Inventory Prepaid Insurance 13,000 23,500-10,500 Total Current Assets 1,614,030 Property & Equipment, net 1,006,500 -1,000,000+63,500-57,000 Total Assets 2,620,530 Liabilities & Equity Liabilities Accounts Payable 193,500/2 96,750 Dividends Payable 18,750 Total Liabilities 115,500 Equity Common Stock 900,000 Retained Earnings 1,605,030 730,050+893,730-18,750 Total Equity 2,505,030 Total Liabilities & Equity 2,620,530