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You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to outlets located in shopping malls across the country. 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) - 20,000 pairs
February (actual) - 50,000
March (actual) - 60,000
April (budget) - 75,000
May (budget) - 110,000
June (budget) - 60,000
July (budget) - 40,000
August (budget) - 28,000
September (budget) - 25,000

The concentration of sales before and during May is due to Mother's Day. 10% of each month's sales are over the counter cash sales, while the remainder are credit sales. 20% of credit sales are collected in the month of sale. An additional 60% is collected in the following month, and 15% is collected in the second month following sales. The remaining 5% is never collected.

Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month. You are a merchandiser and you pay suppliers 5% for each pair of earrings. 50% of a month's purchases is paid for in the month of purchase; the other half is paid for in the following month. Inventory at the end of March was 30,000 units or $150,000. Accounts payable at 3/31 was $165,000

Monthly operating expenses for the company are:
Variable: Sales commissions 5% of total sales each month - paid in the month of sale
Fixed: Advertising - $100,000
Rent - 18,000
Salaries - 102,000
Utilities - 7,000
Insurance - 3,000
Depreciation - 14,000
The company plans to purchase $103,00 in new equipment during May and $60,000 in new equipment during June; both purchases well be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter (i.e. April, July, October, and January)
The company must maintain a minimum cash balance of $20,000. Cash balance April 1st is $20,000. All borrowing will be done at the beginning of a month; any repayments will be made at the end of a month. The annual interest rate will be 12%, not compounded. Compute interest on whole months.

Required:
1. Prepare a schedule of cash collections for the second quarter (April, May, and June quarterly totals are not necessary for any of the schedules for this problem)
2. Prepare a schedule of inventory purchases in dollars April, May, and June
3. Prepare a schedule of expected cash payments for inventory purchases for April, May, and June
4. Prepare a cash budget for April, May and June, including a section for any financing needs and repayments for each month.
5. Compute the accounts receivable and accounts payable 6/30

Thanks for the help!

[Curlyben]

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