Question

Case 8-33 Master Budget with Supporting Schedules (L08-2, LO8-4, LO8-8, LO8-9, LO8-10] 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—$16 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) 23,400 29,400 43,400 68,400 103,400 June (budget) July (budget) August (budget) September (budget) 53,400 33,400 31,400 28,400 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 $5.70 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 : 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Answer 1

Solution 1a:

Sales Budget - Earrings Unlimited
Particulars	April	May	June	Total
Budgeted Sales units	68400	103400	53400	225200
Selling price per unit	$16.00	$16.00	$16.00	$16.00
Total Sales	$1,094,400.00	$1,654,400.00	$854,400.00	$3,603,200.00

Solution 1b:

Schedule of expected cash collection - Earrings Unlimited
Particulars	April	May	June	Total
Cash received for Feburary Sale	$47,040.00			$47,040.00
Cash received for March Sale	$486,080.00	$69,440.00		$555,520.00
Cash received for April Sale	$218,880.00	$766,080.00	$109,440.00	$1,094,400.00
Cash received for May Sale		$330,880.00	$1,158,080.00	$1,488,960.00
Cash received for June Sale			$170,880.00	$170,880.00
Budgeted Cash Collection	$752,000.00	$1,166,400.00	$1,438,400.00	$3,356,800.00

Solution 1c:

Merchandise Purchase Budget - Earrings Unlimited
Particulars	April	May	June	Total
Sales units	68400	103400	53400	225200
Add: Desired ending inventory (40% of next month sales)	41360	21360	13360	13360
Total needs	109760	124760	66760	238560
Less: Opening Inventory	27360	41360	21360	27360
Estimated purchase for earrings (In pairs)	82400	83400	45400	211200
Cost per pair	$5.70	$5.70	$5.70	$5.70
Budgeted purchases (in dollars)	$469,680.00	$475,380.00	$258,780.00	$1,203,840.00

Solution 1d:

Budgeted Cash disbursement for merchandise purchases - Earrings Unlimited
Particulars	April	May	June	Total
Accounts Payable	$117,000.00			$117,000.00
April Purchases	$234,840.00	$234,840.00		$469,680.00
May Purchases		$237,690.00	$237,690.00	$475,380.00
June Purchases			$129,390.00	$129,390.00
Total cash payments	$351,840.00	$472,530.00	$367,080.00	$1,191,450.00

Note: I have answered first 4 parts of the question as HOMEWORKLIB RULES policy, kindly post separate question for answer of remaining parts.