Question

Петр Jave LAIL JUDIMIL Check my work 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 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. 100 points The company sells many styles of earrings, but all are sold for the same price-$16 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings): eBook Print References January (actual) February (actual) March (actual) April (budget) May (budget) 22,000 28,000 42,000 67,000 102,000 June (budget) July (budget) August (budget) September (budget) 52,000 32,000 30,000 27,000 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 $5.00 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: 4% of sales Variable: Sales commissions Fixed: Advertising Rent $ 300,000 $28.000

Answer 1

Answer 1.

Budgeted Unit Sales Selling Price per unit Total Sales Sales Budget April 67000 16.00 1072000 May 102000 16.00 1632000 June 52000 16.00 832000 Quarter 221000 16.00 3536000 June February Sales March Sales April Sales May Sales June Sales Total Cash Collections Earrings Unlimited Schedule of Expected Cash Collections April May 44800 470400 67200 214400 750400 326400 107200 1142400 166400 1416000 Quarter 44800 537600 1072000 1468800 166400 3289600 729600 1144000

Earrings Unlimited Merchandise Purchases Budget April May Budgeted Unit Sales 67000 102000 Add: desired Ending Inventory Inventory 40800 20800 Total Needs 107800 122800 Less: Beginning Merchandise Inventory 26800 40800 Required Purchases 81000 82000 Unit Cost 5.00 Required Dollar Purchases 405000 410000 June 52000 12800 64800 20800 44000 5.00 220000 Quarter 221000 12800 233800 26800 20 7000 5.00 1035000 5.00 Accounts Payable April Purchases May Purchases June Purchases Total Cash Payments Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June 110000 202500 202500 205000 205000 110000 312500 407500 315000 Quarter 110000 405000 410000 110000 1035000

Answer 2.

May 60720 1144000 1204720 June 244940 1416000 1660940 Quarter 84000 3289600 3373600 Earrings Unlimited Cash Budget April Beginning Cash Balance 84000 Add: Collection from Customers 729600 Total Cash Available 813600 Less: Cash Disbursements Merchandise Purchases 312500 Advertising 300000 Rent 28000 Salaries 126000 Commissions 42880 Utilities 12000 Equipment Purchases Dividend Paid 22500 Total Cash Disbursements 843880 Excess of Cash Available Over Disbursements -30280 Financing: Borrowings 91000 Repayments Interest Total Financing 91000 Ending Cash Balance 60720 Interest = $91,000 * 1% *3 = $2,730 407500 300000 28000 126000 65280 12000 21000 315000 300000 28000 126000 33280 1 2000 50000 1035000 900000 84000 378000 141440 36000 71000 22500 2667940 705660 959780 244940 864280 796660 91000 0 -91000 -2730 -93730 702930 -91000 -2730 -2730 702930 244940

Answer 3.

3536000 1246440 2289560 Earrings Unlimited Budgeted Income Statement For the Three Months ended June 30 Sales Less: Variable expenses Cost of goods sold 1105000 Sales commission 141440 Contribution margin Less: Fixed expenses Advertising 900000 Rent 84000 Salaries 378000 Utilities 36000 Insurance 12000 Depreciation 72000 Net Operating income Interest Expense Net income 1482000 807560 2730 804830

Answer 4.

702930 828800 Earrings Unlimited Budgeted Balance Sheet June 30 Assets Cash Accounts Receivable (May sa les $163,200; June sales $665,600) 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 64000 14000 1049000 2658730 110000 22500 1000000 1526230 2658730