Question

Lux Enterprises Inc. (Lux) is a wholesale distributor of earrings. At the start of its second quarter (Q2), Lux hires you to manage its operations. Lux has not prepared budgets in the past, but you decide to prepare a budget for Q2. Lux sells many styles of earrings, all at a selling price of $10 per pair. Actual unit sales for Q1 and budgeted unit sales for Q2 and Q3 are as follow: Actual Unit Sales Budgeted unit Sales January 20,000 April 65,000 July 30,000 February 26,000 May 100,000 August 28,000 March 40,000 June 50,000 September 25,000 The concentration of sales in the spring is due to Mother’s Day. All inventory sales are made on credit and bad debts are negligible. Lux collects 20% in the month of sale, 70% in the following month, and 10% in the second month following the sale. Lux’s only cash collections are from inventory sales. Lux maintains an ending inventory balance sufficient to supply 40% of the budgeted unit sales in the following month. Lux pays its suppliers $4 for a pair of earrings. All inventory purchases are paid 50% in the month of purchase and 50% in the following month. Lux’s monthly operating expenses, other than cost of goods sold, are as follows: Monthly Expenses Variable expenses: Sales commissions 3% of sales Fixed expenses: Advertising expense $200,000 Rent expense $18,000 Salary expense $106,000 Utility expense $7,000 Insurance expense $3,000 Depreciation expense $14,000 All expenses, other than insurance and depreciation, are paid in cash in the month the expense is incurred. Lux pays its annual insurance premium of $36,000 on November 1. Lux plans to purchase for cash $26,000 of new equipment in May and $30,000 of new equipment in June. In March, Lux declared a $15,000 dividend which is payable on April 15. ACG 5075, Managerial Accounting Fall 2020 UF ACG 5075 Schadewald 2 Lux’s balance sheet on April 1 is as follows: Assets Cash $ 224,000 Accounts receivable [a] 346,000 Inventory [b] 104,000 Prepaid insurance 21,000 PP&E, net of depreciation 950,000 Total assets $1,645,000 Liabilities and Stockholders’ Equity Accounts payable [c] $ 100,000 Dividends payable 15,000 Common stock 800,000 Retained earnings 730,000 Total liabilities and stockholders’ equity $1,645,000 [a] Includes $26,000 of February sales (10%), plus $320,000 of March sales (80%) [b] 26,000 units (40% of budgeted sales in April) at $4 per unit [c] 50% of inventory purchases in March Required Prepare a master budget for the second quarter—April, May, and June. 

5. Comprehensive cash budget, by month and in total