Question

Part B: Comprehensive Master Budget Allenby's CEO decided to apply the new budget approach in preparing comprehensive budgets for the upcoming second quarter. The following information is assembled from accounting and other business areas. The company sells many styles of earrings, but all are sold for the same price, i.e. $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): January (actual) 22 000 June (budget) 55 000 February (actual) 28 000 July (budget) 32 000 March (actual) 42 000 August (budget) 30 000 April (actual) 66 000 September (budget) 28 000 May (budget) 100 000 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 45% of the earrings sold in the following month. Suppliers are paid $5 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase, and the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that 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. Variable: Sales commissions 5% of sales Fixed: Advertising $210 000 Rent 22 000 Salaries 110 000 Utilities 8 000 Insurance 5 000 Depreciation 15 000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $20 000 in new equipment during May and $42 000 in new equipment during June, and both will be for cash. The company declares dividends of $15 000 each quarter, payable in the first month of the following quarter.

Answer 1

Solution 1:
Sales Budget - Allenby
Particulars	April	May	June	Total
Budgeted Sales units	66000	100000	55000	221000
Selling price per unit	$12.00	$12.00	$12.00	$12.00
Total Sales	$792,000.00	$1,200,000.00	$660,000.00	$2,652,000.00
Solution 2:
Schedule of expected cash collection - Allenby
Particulars	April	May	June	Total
Cash received for Feburary Sale	$33,600.00			$33,600.00
Cash received for March Sale	$352,800.00	$50,400.00		$403,200.00
Cash received for April Sale	$158,400.00	$554,400.00	$79,200.00	$792,000.00
Cash received for May Sale		$240,000.00	$840,000.00	$1,080,000.00
Cash received for June Sale			$132,000.00	$132,000.00
Budgeted Cash Collection	$544,800.00	$844,800.00	$1,051,200.00	$2,440,800.00
Solution 3:
Merchandise Purchase Budget - Allenby
Particulars	April	May	June	Total
Sales units	66000	100000	55000	221000
Add: Desired ending inventory (45% of next month sales)	45000	24750	14400	14400
Total needs	111000	124750	69400	235400
Less: Opening Inventory	29700	45000	24750	29700
Estimated purchase for earrings (In pairs)	81300	79750	44650	205700
Cost per pair	$5.00	$5.00	$5.00	$5.00
Budgeted purchases (in dollars)	$406,500.00	$398,750.00	$223,250.00	$1,028,500.00
Solution 4:
Budgeted Cash disbursement for merchandise purchases - Allenby
Particulars	April	May	June	Total
Accounts Payable	$125,000.00			$125,000.00
April Purchases	$203,250.00	$203,250.00		$406,500.00
May Purchases		$199,375.00	$199,375.00	$398,750.00
June Purchases			$111,625.00	$111,625.00
Total cash payments	$328,250.00	$402,625.00	$311,000.00	$1,041,875.00