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 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-$20 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) 23,200 February (actual) 29,200 March (actual) 43,200 April (budget) 68,200 May (budget) 103,200 June (budget) 53,200 July (budget) 33,200 August (budget) 31,200 September (budget) 28,200 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 $5.60 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. Monthly operating expenses for the company are given below: 4% of sales Variable: Sales commissions Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $360,000 $ 34,000 $138,000 $ 15,000 $ 4,600 $ 30,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $24.000 in new equipment during May and $56,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $27,000 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: $ 90,000 Assets Cash Accounts receivable ($58,400 February sales; $691,200 March sales) Inventory Prepaid insurance Property and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts pavable 749,600 152,768 29,000 1,110,000 $2,131,368 $ 116.000

Answer 1

Solution 1a:

Sales Budget - Earrings Unlimited
Particulars	April	May	June	Total
Budgeted Sales units	68200	103200	53200	224600
Selling price per unit	$20.00	$20.00	$20.00	$20.00
Total Sales	$1,364,000.00	$2,064,000.00	$1,064,000.00	$4,492,000.00

Solution 1b:

Schedule of expected cash collection - Earrings Unlimited
Particulars	April	May	June	Total
Cash received for Feburary Sale	$58,400.00			$58,400.00
Cash received for March Sale	$604,800.00	$86,400.00		$691,200.00
Cash received for April Sale	$272,800.00	$954,800.00	$136,400.00	$1,364,000.00
Cash received for May Sale		$412,800.00	$1,444,800.00	$1,857,600.00
Cash received for June Sale			$212,800.00	$212,800.00
Budgeted Cash Collection	$936,000.00	$1,454,000.00	$1,794,000.00	$4,184,000.00

Solution 1c:

Merchandise Purchase Budget - Earrings Unlimited
Particulars	April	May	June	Total
Sales units	68200	103200	53200	224600
Add: Desired ending inventory (40% of next month sales)	41280	21280	13280	13280
Total needs	109480	124480	66480	237880
Less: Opening Inventory	27280	41280	21280	27280
Estimated purchase for earrings (In pairs)	82200	83200	45200	210600
Cost per pair	$5.60	$5.60	$5.60	$5.60
Budgeted purchases (in dollars)	$460,320.00	$465,920.00	$253,120.00	$1,179,360.00

Solution 1d:

Budgeted Cash disbursement for merchandise purchases - Earrings Unlimited
Particulars	April	May	June	Total
Accounts Payable	$116,000.00			$116,000.00
April Purchases	$230,160.00	$230,160.00		$460,320.00
May Purchases		$232,960.00	$232,960.00	$465,920.00
June Purchases			$126,560.00	$126,560.00
Total cash payments	$346,160.00	$463,120.00	$359,520.00	$1,168,800.00

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