Question

You have lust been hired as a new management trainee by Earrings United, a distributor of earrings to various reta outlets located in shopping mals 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. The company ses many styles of earrings, but all are sold for the same price-$19 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) 24,000 June (budget) 54,000 Tebruary (actual) 30,000 July (budget) 34,000 Mareh (actual) (budget) 32,000 April September 69,000 29,000 (budget) (budget) May (budget) 104,000 44,000 August 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 $6.00 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. sales Variables Sales commissions Tixed Advertising Rent Salarios Utilities Insurance Depreciation $400,000 $ 38,000 $146,000 $ 17,000 $ 5,000 $ 34,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $26.000 in new equipment during May and $60,000 in new equipment during June: both purchases will be for cash. The company declares dividends of $30,000 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below.

Answer 1

Sales Budget April 69000 May 104000 Units sold S.P Sales 19 June 54000 19 1026000 Quarter 227000 19 4313000 1311000 1976000 June June Coll. From Feb Sales Coll. From march Sales Coll. Form April sales Coll. From MAy sales Coll. From June sales Total Cash Collections Schedule of Expected Cash Collections April May 57,000 5,85,200 83600 2,62,200 9,17,700 3,95,200 Quarter 57000 668800 1311000 1778400 205200 40,20,400 Corresponding Calculations Schedule of Expected Cash Collections April May Coll. From Feb Sales Op. Balance shhet Coll. From march Sales 668800 . 70/80 668800 • 10 / 80 Coll. Form April sales 1311000 + 20 % 1311000 * 70 % Coll. From MAy sales 1976000 20% Coll. From June sales 1,31,100 13,83,200 2.05.200 17,19,500 1311000 • 10% 1976000 70 % 1026000 - 20% 9,04,400 13,96,500 Production Budget Add:- Desired ending FG Units 104000 * 40 % 54000 * 40 % 34000 * 40 % Expected Unit Sales Add:- Desired ending FG Units Total Regd. Units Less:- Beginning FG Units Reqd. prod. Units СР Purchases April 69000 41,600 110600 27,600 83000 May 104000 21,600 125600 41,600 84000 June 54000 13,600 67600 21,600 46000 Quarter 227000 13,600 240600 27,600 213000 Less:- Beginning FG Units 165600/6 498000 504000 276000 1278000 Schedule of Expected Cash Disbursements April May June Quarter March Purchases 1,20,000 1,20,000 April Purchases 249000 249000 498000 May Purchase 252000 252000 504000 June Purchases 138000 138000 Total Cash Disbursement for Purchases 3,69,000 5,01,000 3,90.000 12.60.000

Cash Budget April May June Quarter 94,000 70,960 2,87,420 94,000 9,04,400 13,96,500 17,19,500 40,20,400 9,98,400 14,67,460 20,06,920 41,14,400 3,69,000 4.00.000 38.000 1,46,000 52,440 17,000 Cash Balance Beginning Add Cash Collections Total Cash Available Less Cash Disburtments: Inventory Purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid Total Cash Disbursement Excess (deficiency) of cash Financing: Borrowings Repayments Interest (125,000* 1% * 3) Total Financing Cash Balance, Ending 5,01,000 3.80,000 36.000 1,42,000 79,040 16,000 26,000 3,90,000 3.80,000 36,000 1,42,000 41,040 16.000 60,000 12,60,000 11,60,000 1,10,000 4,30,000 1,72,520 49.000 86,000 30,000 32,99,520 8,16,880 30,000 10,52,440 -54,040 11,80,040 2,87,420 10,66,040 9,41,880 125000 125000 3750 1,28,750 8,13,130 125000 -125000 -3750 -3750 8,13,130 125000 70,960 0 2,87,420

Income Statement For the Quarter Ended June 30 43,13,000 13,62,000 1.72.520 (165600 + 1278000 - 81600) 15,34,520 Formula applied :- COGS = Opening Inventory+ 27,78,480 Purchases - Closing Inventory Closing inventory = 13600 6=81600 Sales Variable Expenses:- Inventory purchases commissions Contribution margin Fised Expenses :- Advertising Rent Salaries Utilities Depreciation ( 34000 * 3) Insurance ( 5000 * 3) Net Operating Income Interest Expenses (Part 4) Net Income 11,60,000 1,10,000 4,30,000 49,000 1,02,000 15,000 18,66,000 9,12,480 3,750 9,08,730 Balance Sheet Assets Current Assets: Cash Accounts Receivable Inventory Prepaid insurance Total Current Assets Buildings and Equipment, Net 1150000 + 86000 - 102000 Total Assets 8,13,130 10,18,400 (1976000 * 10 % + 1026000 * 80 %) 81,600 Closing inventory = 13600 6=81600 16,000 (31000 - 15000) 19,29,130 11,34.000 30,63,130 138000 Liabilities and Equity Current Liabilities Accounts Payable StockHolder's Equity Capital Stock Retained Earnings ( 816400 + 908730) Total Liabilities and Equity 1200000 17,25,130 29,25,130 30,63,130