Case 8-33 (Algo) Master Budget with Supporting Schedules [LO8-2, LO8-4, LO8-3, LO8-9, LO8-10) 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 The company sells many styles of earrings, but all are sold for the same price-$13 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) February (actual) March (actual) April (budget) May (budget) 20,600 26,60 40,600 65,600 100,600 June (budget) July (budget) August (budget) September (budget) 50,600 30,600 28,600 25,600 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 $4.30 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 $ 230,000 Monthly operating expenses for the company are given below. 4% of sales Variable: Sales comissions Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $ 230, $ 21,00 $ 112,0 5 8,500 $ 3,300 $ 17.000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $17,500 in new equipment during May and $13,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $17,250 each quarter, payable in the first month of the following quarter The company's balance sheet as of March 31 is given below 5 97,000 Assets Cash Accounts receivable (534,580 February sales: $422,240 March sales) Inventory Prepaid Insurance Property and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Dividends payable Common stock Retained earnings Total liabilities and stockholders' equity 456,620 112,832 22,500 980,000 $ 1,649,152 103.000 17,250 600,000 563.902 $ 1,649,152 The company maintains a minimum cash balance of $53,000. 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 $53,000 in cash Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules 1 a. A sales budget, by month and in total b. A schedule of expected cash collections, by month and in total c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $53,000 3. A budgeted income statement for the three month period ending June 30. Use the contribution approach 4. A budgeted balance sheet as of June 30 Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Reg 10 Reg 1D Reg 2 Reg 3 Reg 4 Prepare a master budget for the three-month period ending June 30 that includes a cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $53,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Earrings Unlimited Cash Budget 4. A budgeted balance sheet as of June 30. Complete this question wy entering your answers in the tabs below. Req 1A Req 1B Req 1C Req 1D Reg 2 Reg 3 Reg 4 Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected cash disbursements for merchandise purchases, by month and in total. Earrings Unlimited Budgeted Cash Disbursements for Merchandise Purchases April May June Quarter Accounts payable $ 103,000 $ 103,000 April purchases 171,140 171,140 342 280 May purchases 173,290 173,290 346 580 June purchases 91,590 91,590 Total cash payments $ 274,140 $ 344,430 $ 264,880 883,450 Piev 1 of 1 RE Next and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $59,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.) May June Quarter 0 0 0 0 0 0 Earings Unlimited Cash Budget For the Three Months Ending June 30 April Beginning cash balance Add collections from customers Total cash available 0 Less cash disbursements: Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid Total cash disbursements Excess (doficiency) of cash available over disbursements 0 Financing Borrowings Repayments Interest Total financing Ending cash balance $ 05 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5 0 5 Me guuget for the three-month period ending June 30 that includes a budgeted income statement for the three- month period ending June 30. Use the contribution approach. Eine Untimited Budited Income Statement For the Three Months Ended June 30 Variable expenses Fixed expenses 0 0 0 & Reg 2 Reg 4 > Prepare a master budget for the three-month period ending June 30 that includes a budgeted balance sheet as of June 30. Budgend Balice Sheet June Assets 0 Total assets $ Liabilities and Stockholders' Equity Total liabilities and stockholders equity $