Question

Case 8-33 Master Budget with Supporting Schedules [LO8-2, LO8-4, LÖ8-8, LO8-9, LO8-101 You have just beeh hired as a new management trainee by Earrings Unlimited, a distributor of earrings to vartous retall outlets located in shopping malls across the country. In the past, the company has done very Iittle in the way of budgeting and at certaln times of the year has expeñienced 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 combany sells many styles of earrings, but all are sold for the same price-$16 per pair. Actual sales of earrings for the last three month and budgeted sales for the next stx months follow (In pairs of earrings Danuary (actual) February (actual) March (actual) Apri1 (budget) May (budget) June (budget) 22,4ee 52,400 32,40e 28,400 July (budget) August (budget) September (budget) 42,400 67,4ee 102,4ee e,400 27,4ee The concentration of sales before and during May is due to Mother's Day. Suffictent 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 Variable: Sales comnissions 4X of sales Advertising S32e, eee

Answer 1

Answer 1.

Budgeted Unit Sales Selling Price per unit Total Sales Sales Budget April 67400 16.00 1078400 May 102400 16.00 1638400 June 52400 16.00 838400 Quarter 222200 16.00 3555200 June February Sales March Sales April Sales May Sales June Sales Total Cash Collections Earrings Unlimited Schedule of Expected Cash Collections April May 45440 474880 67840 215680 754880 327680 107840 1146880 167680 1 422400 Quarter 45440 542720 1078400 1474560 167680 3308800 736000 1150400

Earrings Unlimited Merchandise Purchases Budget April May Budgeted Unit Sales 67400 102400 Add: desired Ending Inventory Inventory 40960 20960 Total Needs 108360 123360 Less: Beginning Merchandise Inventory 26960 40960 Required Purchases 81400 82400 Unit Cost 5.20 5.20 Required Dollar Purchases | 423280 428480 June 52400 12960 65360 20960 44400 5.20 230880 Quarter 222200 12960 235160 26960 208200 5.20 1082640 Accounts Payable April Purchases May Purchases June Purchases Total Cash Payments Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June 112000 211640 211640 214240 214240 115440 323640 425880 329680 Quarter 112000 423280 428480 115440 1079200

Answer 2.

Earrings Unlimited Cash Budget April 86000 736000 822000 May 62224 1150400 1212624 June 206208 1422400 1628608 Quarter 86000 3308800 3394800 Beginning Cash Balance Add: Collection from Customers Total Cash Available Less: Cash Disbursements Merchandise Purchases Advertising Rent Salaries Commissions Utilities Equipment Purchases Dividend Paid Total Cash Disbursements Excess of Cash Available Over Disbursements Financing: Borrowings Repayments Interest Total Financing Ending Cash Balance Interest = $124,000 * 1% * 3 = $3,720 323640 320000 30000 130000 43136 13000 0 24000 883 776 -61776 425880 320000 30000 130000 65536 13000 22000 0 1006416 206208 329680 320000 30000 130000 33536 13000 52000 0 908216 720392 1079200 960000 90000 390000 142208 39000 74000 24000 2798408 596392 124000 -124000 -3720 -127720 592672 124000 -124000 -3720 -3720 592672 124000 62224 206208

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 142 208 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.

592672 834560 Earrings Unlimited Budgeted Balance Sheet June 30 Assets Cash Accounts Receivable (May sales $ 163,840; June sales $670,720) 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 67392 14400 1066000 2575024 115440 24000 1040000 1395584 2575024