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 comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. 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 -$10 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) 20,000 June (budget) 26,000 July (budget) 40,000 August (budget) 65,000 September (budget) 100,000 50,000 30,000 28,000 25,000 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 40% of the earrings sold in the following month. Suppliers are paid $4 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, 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.

Answer 1

Solution 1a:

Sales Budget - Earrings Unlimited
Particulars	April	May	June	Total
Budgeted Sales units	65000	100000	50000	215000
Selling price per unit	$10.00	$10.00	$10.00	$10.00
Projected Sales Revenue	$650,000.00	$1,000,000.00	$500,000.00	$2,150,000.00

Solution 1b:

Schedule of expected cash collection - Earrings Unlimited
Particulars	April	May	June	Total
Cash received for Feburary Sale	$26,000.00			$26,000.00
Cash received for March Sale	$280,000.00	$40,000.00		$320,000.00
Cash received for April Sale	$130,000.00	$455,000.00	$65,000.00	$650,000.00
Cash received for May Sale		$200,000.00	$700,000.00	$900,000.00
Cash received for June Sale			$100,000.00	$100,000.00
Budgeted Cash Collection	$436,000.00	$695,000.00	$865,000.00	$1,996,000.00

Solution 1c:

Merchandise Purchase Budget - Earrings Unlimited
Particulars	April	May	June	Total
Sales units	65000	100000	50000	215000
Add: Desired ending inventory (40% of next month sales)	40000	20000	12000	12000
Less: Opening Inventory	26000	40000	20000	26000
Estimated purchase for earrings (In pairs)	79000	80000	42000	201000
Cost per pair	$4.00	$4.00	$4.00	$4.00
Budgeted purchases (in dollars)	$316,000.00	$320,000.00	$168,000.00	$804,000.00

Solution 1d:

Cash Payment for Material Purchase Budget - Earrings Unlimited
Particulars	April	May	June	Total
Payables from March	$100,000.00			$100,000.00
April Purchases	$158,000.00	$158,000.00		$316,000.00
May Purchases		$160,000.00	$160,000.00	$320,000.00
June Purchases			$84,000.00	$84,000.00
Total payments in month	$258,000.00	$318,000.00	$244,000.00	$820,000.00

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