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• You are a team of consultants who assist organizations with budgeting, and you provide data analysis to assist with decision making. You have just been hired as a consultant 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. The organization is also interested in changing the commission structure to see if they can boost profits. 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 $17 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) 22,400	June (budget) 51,400
February (actual)27,400	July (budget) 21,400
March (actual)41,400	August (budget) 31,400
April (budget) 66,600	September (budget) 26,400
May (budget)101,400

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 $5.40 for a pair of earrings. One-half of a month's purchases is paid month of purchase; the other half is paid for in the following month. All sales are on cre of a month's sales are collected in the month of sale. An additional 70% is collected in t month, and the remaining 10% is collected in the second month following sale. Bad del negligible.

Monthly operating expenses for the company are given below:

Variable
Sales commission	4	% of sales
Fixed:
advertising	$	240,000
Rent	$	24,000
salaries	$	140,000
utilities	$	8,4000
Insurance	$	3,4000
depreciation	$	19,400

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

The company plans to purchase $17,400 in new equipment during May and $44,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $18,400 each quarter, payable in the first month of the following quarter.

Assets
Cash	$	68,400
Accounts receivable ($46,580 February sales; $563,040 March sales)		609,620
Inventory		143,424
Prepaid insurance		27,200
Property and equipment (book value net of Acc. Depr))		1,140,000
Total assets		1,988,644
LIABILITES AND STOCKHOLDERS' EQUITY
Accounts payable		138,780
Dividends payable		18,400
Common stock		1,1400,000
Retained earnings		691,464
total liabilities and stockholders equity	$	1,988,644

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 $54,000 in cash.

Required Deliverables:

Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:

1. The master budget deliverables must be in Excel.

a. A sales budget, by month and in total for the second quarter.

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 $54,000.

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.

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