manny1070 Posts: 1, Reputation: 1 New Member   #1 May 1, 2013, 04:18 PM

Master Budget with Supporting Schedules 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) 21,500 June (budget) 51,500 February (actual) 27,500 July (budget) 31,500 March (actual) 41,500 August (budget) 29,500 April (budget) 66,500 September (budget) 26,500 May (budget) 101,500 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 30% 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 30% of a month's sales are collected in the month of sale. An additional 60% 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 commissions 4 % of sales Fixed: Advertising $ 198,500 Rent $ 16,500 Salaries $ 104,500 Utilities $ 5,500 Insurance $ 1,500 Depreciation $ 12,500 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $14,700 in new equipment during May and $38,500 in new equipment during June; both purchases will be for cash. The company declares dividends of $12,500 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: Assets Liabilities and Stockholders' Equity Cash $ 65,300 Accounts payable $ 98,000 Accounts receivable ($27,500 February sales; $290,500 March sales) 318,000 Dividends payable 12,500 Inventory 79,800 Capital stock 950,000 Prepaid insurance 22,500 Retained earnings 595,000 Property and equipment (net) 1,169,900 Total assets $ 1,655,500 Total liabilities and stockholders' equity $ 1,655,500 The company maintains a minimum cash balance of $60,000. 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 $60,000 in cash. Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets: Requirement 1: (a) A sales budget, by month and in total. (Omit the "$" sign in your response.) April May June Quarter Budgeted sales in units Selling price per unit $ $ $ $ Total sales $ $ $ $ (b) A schedule of expected cash collections from sales, by month and in total. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) April May June Quarter February sales $ $ $ $ March sales April sales May sales June sales Total cash collections $ $ $ $ (c) A merchandise purchases budget in units and in dollars. (Omit the "$" sign in your response.) April May June Quarter Required unit purchases Required dollar purchases $ $ $ $ (d) A schedule of expected cash disbursements for merchandise purchases, by month and in total. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) April May June Quarter Accounts payable $ $ $ $ April purchases May purchases June purchases Total cash payments $ $ $ $ Requirement 2: A cash budget. Show the budget by month and in total. (Leave no cells blank - be certain to enter "0" wherever required. Deficiencies, repayments and interest should be preceded by a minus sign when appropriate. Total financing should be preceded by a minus sign when it consist of repayments and interest. Omit the "$" sign in your response.) Earrings Unlimited Cash Budget For the Three Months Ending June 30 April May June Quarter Total cash available $ $ $ $ Less disbursements: Total disbursements Excess (deficiency) of receipts over disbursements Financing: Total financing Cash balance, ending $ $ $ $ Requirement 3: A budgeted income statement for the three-month period ending June 30. Use the contribution approach. (Input the amount as positive value. Omit the "$" sign in your response.) Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 $ Variable expenses: $ Contribution margin Fixed expenses: : $ Requirement 4: A budgeted balance sheet as of June 30. (Omit the "$" sign in your response.) Earrings Unlimited Budgeted Balance Sheet June 30 Assets Liabilities and Stockholders' Equity $ $ Total assets $ Total liabilities and Stockholders' equity $

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