You have just been hired as a new management trainee by EarringsUnlimited, a distributor of earrings to various retail outletslocated in shopping malls across the country. In the past, thecompany has done very little in the way of budgeting and at certaintimes of the year has experienced a shortage of cash.

   

Since you are well trained in budgeting, you have decided toprepare comprehensive budgets for the upcoming second quarter inorder to show management the benefits that can be gained from anintegrated budgeting program. To this end, you have worked withaccounting and other areas to gather the information assembledbelow.

   

The company sells many styles of earrings, but all are sold forthe same price—$14 per pair. Actual sales of earrings for the lastthree months and budgeted sales for the next six months follow (inpairs of earrings):

   

January (actual)	20,900	June (budget)	50,900
February (actual)	26,900	July (budget)	30,900
March (actual)	40,900	August (budget)	28,900
April (budget)	65,900	September (budget)	25,900
May (budget)	100,900

   

The concentration of sales before and during May is due toMother's Day. Sufficient inventory should be on hand at the end ofeach month to supply 30% of the earrings sold in the followingmonth.

   

Suppliers are paid $8 for a pair of earrings. One-half of amonth's purchases is paid for in the month of purchase; the otherhalf is paid for in the following month. All sales are on credit,with no discount, and payable within 15 days. The company hasfound, however, that only 20% of a month's sales are collected inthe month of sale. An additional 60% is collected in the followingmonth, and the remaining 20% is collected in the second monthfollowing sale. Bad debts have been negligible.

Monthly operating expenses for the company are givenbelow:

   

Variable:
Sales commissions	4	% of sales
Fixed:
Advertising	$	199,100
Rent	$	17,100
Salaries	$	105,100
Utilities	$	6,100
Insurance	$	2,100
Depreciation	$	13,100

    

Insurance is paid on an annual basis, in November of eachyear.

The company plans to purchase $15,300 in new equipment duringMay and $39,100 in new equipment during June; both purchases willbe for cash. The company declares dividends of $10,500 eachquarter, payable in the first month of the following quarter.

A listing of the company's ledger accounts as of March 31 isgiven below:

    

Assets			Liabilities and Stockholders'Equity
Cash	$	150,000	Accounts payable	$	193,600
Accounts receivable ($75,320 February      sales; $458,080 March sales)		533,400	Dividends payable		10,500
Inventory		158,160	Capital stock		890,000
Prepaid insurance		21,900	Retained earnings		589,000
Property and equipment (net)		819,640
Total assets	$	1,683,100	Total liabilities and stockholders' equity	$	1,683,100

   

The company maintains a minimum cash balance of $30,000. Allborrowing is done at the beginning of a month; any repayments aremade at the end of a month.

The company has an agreement with a bank that allows the companyto borrow in increments of $1,000 at the beginning of each month.The interest rate on these loans is 1% per month and for simplicitywe will assume that interest is not compounded. At the end of thequarter, the company would pay the bank all of the accumulatedinterest on the loan and as much of the loan as possible (inincrements of $1,000), while still retaining at least $30,000 incash.

Prepare a master budget for the three-month period ending June30. Include the following detailed budgets:

    

Requirement 2:

A cash budget. Show the budget by month and in total.(Leave no cells blank - be certain to enter "0" whereverrequired. Input all amounts as positive values except deficiencies,repayments and interest which should be preceded by a minus signwhen appropriate. Total financing should be preceded by a minussign when it consist of repayments and interest. Omit the "$" signin your response.)

    

EARRINGS UNLIMITED Cash Budget For the Three Months Ending June 30
	April		May		June		Quarter
Total cash available	$		$		$		$
Less disbursements:
(Click toselect)BorrowingsMerchandise purchasesCashRepaymentsInterest
(Click toselect)RepaymentsInterestSalesCashAdvertising
(Click to select)Purchase ofinventoryAccounts payableCashRentLand purchases
(Click toselect)SalariesBorrowingsSalesInterestRepayments
(Click toselect)InterestCashBorrowingsCommissionsSales
(Click toselect)RepaymentsCashUtilitiesBorrowingsInterest
(Click to select)AccountspayableEquipment purchasesInterestRepaymentsSales
(Click to select)DividendspaidRepaymentsSalesBorrowingsAccounts payable
Total disbursements
Excess (deficiency) of receipts over     disbursements
Financing:
(Click toselect)SalesMiscellaneousBorrowingsSales commissionsAccountspayable
(Click to select)SalesDividendspaidRepaymentsSalaries and wagesCash
(Click to select)Purchase ofinventoryAccounts payableInterestLand purchasesCash
Total financing
Cash balance, ending	$		$		$		$