Question

The company sells many styles of earrings, but all are sold for the same price—$14 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)	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 to Mother's Day. Sufficient inventory should be on hand at the end of each month to supply 30% of the earrings sold in the following month.

   

Suppliers are paid $8 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, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month's sales are collected in the month of sale. An additional 60% is collected in the following month, and the remaining 20% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

   

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 each year.

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

A listing of the company's ledger accounts as of March 31 is given 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. 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 $30,000 in cash.

Prepare a master budget for the three-month period ending June 30. 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" wherever required. Input all amounts as positive values except deficiencies, repayments and interest which should be preceded by a minus sign when appropriate. Total financing should be preceded by a minus sign when it consist of repayments and interest. Omit the "$" sign in your response.)

    

EARRINGS UNLIMITED Cash Budget For the Three Months Ending June 30
	April		May		June		Quarter
Total cash available	$		$		$		$
Less disbursements:
(Click to select)RepaymentsCashMerchandise purchasesInterestBorrowings
(Click to select)SalesInterestCashAdvertisingRepayments
(Click to select)CashRentLand purchasesPurchase of inventoryAccounts payable
(Click to select)BorrowingsSalariesSalesInterestRepayments
(Click to select)SalesCommissionsInterestBorrowingsCash
(Click to select)InterestUtilitiesRepaymentsBorrowingsCash
(Click to select)Accounts payableInterestRepaymentsSalesEquipment purchases
(Click to select)RepaymentsAccounts payableBorrowingsSalesDividends paid
Total disbursements
Excess (deficiency) of receipts over     disbursements
Financing:
(Click to select)Sales commissionsBorrowingsAccounts payableMiscellaneousSales
(Click to select)RepaymentsDividends paidCashSalaries and wagesSales
(Click to select)InterestAccounts payablePurchase of inventoryCashLand purchases
Total financing
Cash balance, ending	$		$		$		$

Answer 1