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—$12 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) 21,700 June (budget) 51,700
February (actual) 27,700 July (budget) 31,700
March (actual) 41,700 August (budget) 29,700
April (budget) 66,700 September (budget) 26,700
May (budget) 101,700

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 $6 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 6 % of sales
Fixed:
Advertising $ 198,300
Rent $ 16,300
Salaries $ 104,300
Utilities $ 5,300
Insurance $ 1,300
Depreciation $ 12,300

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $14,500 in new equipment during May and $38,300 in new equipment during June; both purchases will be for cash. The company declares dividends of $13,500 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 I Liabilities and Stockholders' Equity
Cash $ 72,500 I Accounts payable $ 147,600
Accounts receivable ($33,240 February
sales; $350,280 March sales) 383,520
I Dividends payable 13,500
Inventory 120,060
I Capital stock 970,000
Prepaid insurance 22,700 Retained earnings 597,000
Property and equipment (net) 1,129,320


Total assets $ 1,728,100 Total liabilities and stockholders' equity $ 1,728,100



The company maintains a minimum cash balance of $55,000. 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 $55,000 in cash.

Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
(a) A sales budget, by month and in total.

April May June Quarter
Budgeted sales in units 66700 101700 51700 220100
Selling price per unit $ 12 12 12 12
Total sales 800400 1220400 620400 2641200

What is schedule of expected cash collections from sales, by month and in total ?

April/ May/ June/ Quarter


Feb sales
March sales
April Sales
May sales
June sales
Total Cash collections

C) What is A merchandise purchases budget in units and in dollars?

April/ May/ June/ Quarter

Required unit purchases
Required dollar purchases