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Earrings Unlimited_Master Budget




Question;COURSE PROJECT A INSTRUCTIONS;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);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.;Monthly operating expenses for the company are given below;Insurance is paid on an annual basis, in November of each year.;The company plans to purchase $16,000 in new equipment during May;and $40,000 in new equipment during June, both purchases will be for cash. The;company declares dividends of $15,000 each quarter, payable in the first month;of the following quarter.;A listing of the company's ledger accounts as of March 31 is given;below;The company maintains a minimum cash balance of $50,000. All;borrowing is done at the beginning of a month, any repayments are made at the;end of a month.;The company has an agreement with a bank that allows the company;to borrow in increments of $1,000 at the beginning of each month. The interest;rate on these loans is 1% per month and for simplicity we will assume that;interest is not compounded. At the end of the quarter, the company would pay;the bank all of the accumulated interest on the loan and as much of the loan as;possible (in increments of $1,000), while still retaining at least $50,000 in;cash.;Required;Prepare a master budget for the three-month period ending June 30.;Include the following detailed budgets;?;1.;o a. A sales budget, by month and in total.;o b. A schedule of expected cash collections from;sales, by month and in total.;o c. A merchandise purchases budget in units and in;dollars. Show the budget by month and in total.;o d. A schedule of expected cash disbursements for;merchandise purchases, by month and in total.;?;2. A cash budget. Show the budget by month and in;total. Determine any borrowing that would be needed to maintain the minimum;cash balance of $50,000.;?;3. A budgeted income statement for the;three-month period ending June 30. Use the contribution approach.;?;4. A budgeted balance sheet as of June 30.


Paper#37469 | Written in 18-Jul-2015

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