Question

NEED HELP ON CASH DISBURSEMENTS, CASH BUDGET, INCOME STATEMENT AND BALANCE SHEET.

INFO BELOW

You have just been hired as a new management trainee buy earrings and limited, a distributor of earrings to various retail outlet located in the shopping mall across the country. In the past they 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 quarter. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many types of earrings but are all sold for the same price – $12 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings parentheses). FIRST PHOTO

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 $4.20 for a pair of earrings. 1/2 of a months 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 sales are collected in the month of sale. An additional 70% is collected in the following months, and the remaining 10% is collected and the second by the following sale. Bad debts have been negligible.

$4.20 for a pair of earrings. Would half of a months 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 sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected and the second by the following sale. That does have been negligible

monthly operating expenses for the company are given below. PHOTO 2

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $17,000 in new equipment during May and $42,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $16,500 each quarter, payable in the first month of the following quarter.

The company plans to purchase $17,000 in new equipment during May and $42,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $16,500 each quarter, payable in the first month of the following quarter.

The companies balance sheet as of March 31 is given below.

(PHOTO 3)

The company maintains a minimum cash balance of $52,000. All borrowing is done at the beginning of the month; any re-payments are made at the end of the month.

The company has an agreement with the bank that allows the company to borrow in increments of $1000 at the beginning of each month. The interest rate on these loads is 1% per month and for simplicity we assume that interest is not compounded. I did end of the quarter, the company would still pay all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1000.), while still retaining at least $52,000 in cash.

Required:

Prepare A master budget for the three month period ending June 30. Include the following detailed schedules:

1a. A sales budget, by month and in total. ALREADY COMPLETED

1b. A schedule of expected cash collections, by month and in total. ALREADY COMPLETED

1c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. ALREADY COMPLETED

1d. A schedule of cash disbursements for merchandise purchases, by month and in total. PARTIAL: PHOTO 4

2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $52,000: NOT COMPLETED PHOTO 5

3. A budgeted income statement for the three month-period ending in June 30. use the contribution approach. NOT COMPLETED PHOTO 6

4. A budgeted balance sheet as of June 30. NOT COMPLETED PHOTO 7

January (actual) February (actual) March (actual) April (budget) May (budget) 20,400 26,400 40,400 65,400 100,400 June (budget) July (budget) August (budget) September (budget) 50,400 30, 400 28,400 25,400

Answer 1

Solution Requirement 1a. : Sales budget, by month and in total Budgeted sales units Selling price per unit Total sales Sales Budget April 65,400 $121 $784,800 May 100,400 $121 $1,204,800 June 50,400 $121 $604,800 Quarter 216,200 $12 $2,594,400 Requirement 1b. : Schedule of Expected cash collections, by month and in total June Earrings Unlimited Schedule of Expected Cash collections April $31,6801 $339,360 $156,960 $0 February Sales March Sales April Sales May Sales June Sales Total cash collections $0 May $ol $48,480 $549,3601 $240,960 $0 $838,800 $0 $78,480 $843,360 $120,960 $1,042,800 Quarter $31,680 $387,840 $784,800 $1,084,320 $120,960 $2,409,600 $528,000 Requirement 1c. : Merchandise purchase budget in units and in dollars Budgeted Sales Units Add: Desired ending inventory Total needs Less: Likely beginning inventory Required purchases (in units) Unit cost Required dollar purchases Earrings Unlimited Merchandise Purchase Budget April 65,400 40,1601 105,560 26,160 79,400 $4.20 $333,480 May 100,4001 20,160 120,560 40,160 80,400 $4.20 $337,680 June 50,400 12,160 62,560 20,1601 42,400 $4.20 $178,080 Quarter 216,200 12,160 228,360 26,160 202,200 $4.20 $849,240

Requirement 1d. : Schedule of expected cash disbursements for merchandise purchases, by month and in total June Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May $102,000 $0 $166,740 $166,740 $0 $168,840 $0 $268,740 $335,580 Accounts Payable April purchases May purchases June purchases Total cash payments $0 $0 | $168,840 $89,040 $257,880 Quarter $102,000 $333,480 $337,680 $89,040 $862,200 Requirement 2: Cash Budget May $52,368 $838,800 $891,168 June $132,396 $1,042,800 $1,175,196 Quarter $76,000 $2,409,600 $2,485,600 $335,580 $220,000 Earrings Unlimited Cash Budget For the Three Months Ending June 30 April Beginning cash balance $76,000 Add: Collections from customers $528,000 Total cash available $604,000 Less: Cash disbursements: Merchandise purchases $268,740 Advertising $220,000 Rent Salaries $110,000 Commissions $31,392 Utilities $8,000 Equipment purchases $0 Dividends paid $16,500 Total cash disbursements $674,632 Excess (deficiency) of cash available over disbursements ($70,632) Financing: Borrowings $123,000 Repayments $0 Interest Total financing $123,000 Ending cash balance $52,368 $110,000 $48,192 $8,000 $17,000 Sol $758,772 $132,396 $257,880 $220,000 $20,000 $110,000 $24,192 $8,000 $42,000 $0 $682,072 $493,124 $862,200 $660,000 $60,000 $330,000 $103,776 $24,000 $59,000 $16,500 $2,115,476 $370,124 $o $0 $0 $0 $0 $132,396 $0 ($123,000) ($3,690)| ($126,690) $366,434 $123,000 ($123,000) ($3,690) ($3,690) $366,434

Requirement 3 : Budgeted Income Statement for the three-month period ending June 30 $2,594,400 $908,040 $103,7761 $1,011,816 $1,582,584 Earrings Unlimited Budgeted Income Statement For the Three-months Ended June 30 Sales Revenue Variable expenses: Cost of Goods sold (216,200 units x $4.20) Sales Commissions ($2,594,400 x 4%) Total Variable expenses Contribution Margin Fixed expenses: Advertising Rent Salaries Utilities Insurance ($3,200 x 3month) Depreciation ($16,000 x 3month) Interest expense Total Fixed expenses Net Income $660,000 $60,000 $330,000 $24,000 $9,600 $48,000 $3,690 $1,135,290 $447,294 Requirement 4: Budgeted Balance Sheet as of June 30 Earrings Unlimited Budgeted Balance Sheet June 30 Assets Cash Accounts Receivable Inventory (12,160 units x $4.20) Prepaid Insurance ($22,000 - $9,600) Property and equipment (net) ($970,000+ $59,000 - $ 48,000) Total assets $366,434 $604,3201 $51,072 $12,400 $981,000 $2,015, 226 Liabilities and Stockholder's Equity Accounts Payable Dividends Payable Common stock Retained Earnings ($638,892 + $447,294 - $16,500) Total liabilities and stockholders' equity $89,0401 $16,500 $840,000 $1,069,686 $2,015,226

To see the formulas, please see the below images:

Solution 1 2 3 Requirement la. : Sales budget, by month and in total Sales Budget April 65400 June 50400 Quarter -SUM(C7:E7) Budgeted sales units Selling price per unit Total sales May 100400 12 =D7*D8 12 1 =C7*C8 =E7*E8 =F7*F8 8 9 10 11 12 Requirement 1b. : Schedule of Expected cash collections, by month and in total 13 14 15 Earrings Unlimited Schedule of Expected Cash collections April May =26400*12*10% =40400*12*70% -40400*12*10% =C9*2096 =C9*70% =D9.2006 16 17 18 19 20 21 22 23 February Sales March Sales April Sales May Sales June Sales ITotal cash collections June Quarter -SUM(C16:E16) 0 -SUM(C17:E17) =C9 10% -SUM(C18:E18) =D9°7095 -SUM(C19:19) =E92096 -SUM(C20:E20) SUM(E16:E20) =SUM(F16:F20) =SUM(C16:C20) =SUM(D16:D20) Requirement 1c. : Merchandise purchase budget in units and in dollars 24 25 26 27 28 Budgeted Sales Units 29 Add: Desired ending inventory 30 Total needs 31 Less: Likely beginning inventory 32 Required purchases (in units) 33 Unit cost 34 Required dollar purchases 35 Earrings Unlimited Merchandise Purchase Budget April May =D7 =D74096 =E7*40% =C28+C29 =D28+D29 =C284096 =D28*40% =C30-C31 =D30-D31 4.2 4.2 =C32*C33 =D32*033 June =E7 =30400*4096 =E28+E29 =E284096 =E30-E31 4.2 =E32*E33 Quarter ESUM(C28:E28) E29 =F28+F29 =C31 =F30-F31 14.2 =F32*F33

36 Requirement 1d. : Schedule of expected cash disbursements for merchandise purchases, by month and in total 37 38 39 40 41 Accounts Payable 42 April purchases 43 May purchases June purchases 45 Total cash payments Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May 102000 lo =C34/2 2 =C34/ 0 =D34/2 June Quarter o -SUM(C41:E41) -SUM(C42:E42) =D34/2 -SUM(C43:E43) =E34/2 -SUM(C44:E44) =SUM(E41:E44) =SUM(F41:F44) 44 1 =SUM(C41:C44) =SUM(D41:044) 46

47 Requirement 2: Cash Budget 49 50 51 52 53 54 June Quarter | =D72 -C53 |=E21 -SUM(C54:E54) |-SUM(E53:E54) T-SUM(F53:F54) 55 56 57 Earrings Unlimited Cash Budeet For the Three Months Ending June 30 April May Beeinning cash balance 76000 =C72 Add: Collections from customers =C21 -D21 Total cash available =SUM(C53:054) -SUM(D53:054) Less: Cash disbursements: Merchandise purchases =C45 =D45 Advertising 220000 220000 Rent 20000 20000 Salaries 110000 110000 Commissions =C9*496 =D9*4% Utilities 8000 8000 Equipment purchases 17000 Dividends paid 16500 Total cash disbursements =SUM(C57:C64) T-SUM(D57:064) Excess (deficiency) of cash available over disbursements =C55-C65 | =D55-D65 Financing Borrowings |=71000+52000 lo Repayments Interest Total financing -SUM(C68:C70) SUM(D68:D70) Ending cash balance | =C66+C71 =D66+D71 =E45 -SUM(C57:E57) 220000 -SUM(C58:E58) 20000 -SUM(C59:E59) 110000 -SUM(C60:E60) =E9*4% -SUM(C61:E61) 8000 -SUM(C62:E62) 42000 -SUM(C63:E63) -SUM(C64:E64) -SUM(E57:E64) I-SUM(F57:F64) =E55-E65 =F55-F65 63 64 65 66 67 68 69 70 71 72 73 -SUM(C68:E68) --C68 =SUM(C69:E69) =-(C681963) -SUM(C70:E70) -SUM(E68:E70) I-SUM(F68:F70) =E66+E71 =F66+F71

77 74 Requirement 3: Budgeted Income Statement for the three-month period ending June 30 75 76 Earrings Unlimited Budgeted Income Statement 78 For the Three-months Ended June 30 Sales Revenue =F9 Variable expenses: 81 Cost of Goods sold (216,200 units x $4.20) -F7 4.2 82 Sales Commissions ($2,594,400 x 4%) =D79*496 83 Total Variable expenses =SUM(C81:C82) 84 Contribution Margin =D79-D83 85 Fixed expenses: Advertising =F58 Rent =F59 Salaries =F60 Utilities =F62 Insurance ($3,200 x 3month) =3200*3 Depreciation ($ 16,000 x 3month) =16000*3 92 Interest expense --F70 Total Fixed expenses -SUMIC86-092) 94 Net Income =D84-093 95 86 93

96 Requirement 4: Budgeted Balance Sheet as of June 30 97 98 Earrings Unlimited 99 Budgeted Balance Sheet 100 June 30 101 Assets 102 Icash 103 Accounts Receivable 104 Inventory (12,160 units x $4.20) 105 Prepaid Insurance ($22,000 - $9,600) 106 Property and equipment (net) ($970,000+ $59,000 - $48,0 107 Total assets =F72 =F9-SUM(F18:F20) =E29*4.2 =22000-090 =970000+F63-C91 | =SUM(D102:D106) 108 109 Liabilities and Stockholder's Equity 110 Accounts Payable 111 Dividends Payable 112 Common stock Retained Earnings ($638,892 +$447,294 - $16,500) 114 Total liabilities and stockholders' equity 115 1=E34-E44 16500 840000 =638892+D94-D111 =SUM(D110:D113) 113