Question

Ches 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) 22,400 28,480 42,400 67,400 102,400 June (budget) July (budget) August (budget) September (budget) 52,400 32,400 30,400 27,400 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 $5.20 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: < Prev 6 of 6 Next o a to search LE

Answer 1

Answer 1.

June Quarter Sales Budget April 67400 16.00 Budgeted Unit Sales Selling Price per unit Total Sales May 102400 16.00 1638400 52400 16.00 222200 16.00 3555200 1078400 83 8400 June Earrings Unlimited Schedule of Expected Cash Collections April May 45440 474880 67840 215680 754880 327680 February Sales March Sales April Sales May Sales June Sales Total Cash Collections 107840 Quarter 45440 542720 1078400 1474560 167680 3308800 1146880 167680 1422400 736000 1150400

June Earrings Unlimited Merchandise Purchases Budget April May Budgeted Unit Sales 67400 102400 Add: desired Ending Inventory Inventory 40960 20960 Total Needs 108360 123 360 Less: Beginning Merchandise Inventory 26960 40960 Required Purchases 81400 82400 Unit Cost 5.20 5.20 Required Dollar Purchases 423280 428480 Quarter 222200 12960 235160 52400 12960 65360 20960 44400 5.20 2308 80 26960 208200 5.20 1082640 Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June 112000 211640 211640 214240 214240 Quarter 112000 423280 Accounts Payable April Purchases May Purchases June Purchases Total Cash Payments 428480 115440 329680 115440 1079200 323640 425880

Answer 2.

Quarter May 62224 June 206208 86000 1150400 3308800 1422400 1628608 1212624 3394800 425880 320000 329680 320000 1079200 960000 30000 30000 130000 65536 130000 90000 390000 142208 335 36 Earrings Unlimited Cash Budget April Beginning Cash Balance 86000 Add: Collection from Customers 736000 Total Cash Available 822000 Less: Cash Disbursements Merchandise Purchases 323640 Advertising 320000 Rent 30000 Salaries 130000 Commissions 43136 Utilities 13000 Equipment Purchases 0 Dividend Paid 24000 Total Cash Disbursements 883 776 Excess of Cash Available Over Disbursements -61776 Financing: Borrowings 124000 Repayments 0 Interest 0 Total Financing 124000 Ending Cash Balance 62224 Interest = $124,000 * 1% * 3 = $3,720 13000 22000 13000 52000 39000 74000 0 0 1006416 206208 908216 720392 24000 2798408 596392 0 0 124000 - 124000 0 0 -3720 -124000 3720 - 127720 592672 0 -3720 206208 592672

Answer 3.

3555 200 1297648 2257552 Earrings Unlimited Budgeted Income Statement For the Three Months ended June 30 Sales Less: Variable expenses Cost of goods sold 1155440 Sales commission 142208 Contribution margin Less: Fixed expenses Advertising 960000 Rent 90000 Salaries 390000 Utilities 39000 Insurance 12600 Depreciation 78000 Net Operating income Interest Expense Net income 1569600 687952 3720 684232

Answer 4.

Earrings Unlimited Budgeted Balance Sheet June 30 Assets Cash Accounts Receivable Inventory Prepaid insurance Property, plant and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Dividends payable Common Stock Retained earnings Total liabilities and stockholder's equity 592672 8345 60 67392 14400 1066000 2575024 115440 24000 1040000 1395584 2575024