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) | 20,600 | June (budget) | 50,600 |
| February (actual) | 26,600 | July (budget) | 30,600 |
| March (actual) | 40,600 | August (budget) | 28,600 |
| April (budget) | 65,600 | September (budget) | 25,600 |
| May (budget) | 100,600 | ||
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:
| Variable: | |||
| Sales commissions | 4 | % of sales | |
| Fixed: | |||
| Advertising | $ | 230,000 | |
| Rent | $ | 21,000 | |
| Salaries | $ | 112,000 | |
| Utilities | $ | 8,500 | |
| Insurance | $ | 3,300 | |
| Depreciation | $ | 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 $43,000 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:
| Assets | ||
| Cash | $ | 77,000 |
| Accounts receivable ($34,580 February sales; $422,240 March sales) | 456,820 | |
| Inventory | 112,832 | |
| Prepaid insurance | 22,500 | |
| Property and equipment (net) | 980,000 | |
| Total assets | $ | 1,649,152 |
| Liabilities and Stockholders’ Equity | ||
| Accounts payable | $ | 103,000 |
| Dividends payable | 17,250 | |
| Common stock | 860,000 | |
| Retained earnings | 668,902 | |
| Total liabilities and stockholders’ equity | $ | 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:
4. A budgeted balance sheet as of June 30.
In: Accounting
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) | 20,600 | June (budget) | 50,600 |
| February (actual) | 26,600 | July (budget) | 30,600 |
| March (actual) | 40,600 | August (budget) | 28,600 |
| April (budget) | 65,600 | September (budget) | 25,600 |
| May (budget) | 100,600 | ||
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:
| Variable: | |||
| Sales commissions | 4 | % of sales | |
| Fixed: | |||
| Advertising | $ | 230,000 | |
| Rent | $ | 21,000 | |
| Salaries | $ | 112,000 | |
| Utilities | $ | 8,500 | |
| Insurance | $ | 3,300 | |
| Depreciation | $ | 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 $43,000 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:
| Assets | ||
| Cash | $ | 77,000 |
| Accounts receivable ($34,580 February sales; $422,240 March sales) | 456,820 | |
| Inventory | 112,832 | |
| Prepaid insurance | 22,500 | |
| Property and equipment (net) | 980,000 | |
| Total assets | $ | 1,649,152 |
| Liabilities and Stockholders’ Equity | ||
| Accounts payable | $ | 103,000 |
| Dividends payable | 17,250 | |
| Common stock | 860,000 | |
| Retained earnings | 668,902 | |
| Total liabilities and stockholders’ equity | $ | 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.
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.
In: Accounting
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—$18 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) | 23,800 | June (budget) | 53,800 |
| February (actual) | 29,800 | July (budget) | 33,800 |
| March (actual) | 43,800 | August (budget) | 31,800 |
| April (budget) | 68,800 | September (budget) | 28,800 |
| May (budget) | 103,800 | ||
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 $5.90 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:
| Variable: | |||
| Sales commissions | 4 | % of sales | |
| Fixed: | |||
| Advertising | $ | 390,000 | |
| Rent | $ | 37,000 | |
| Salaries | $ | 144,000 | |
| Utilities | $ | 16,500 | |
| Insurance | $ | 4,900 | |
| Depreciation | $ | 33,000 | |
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $25,500 in new equipment during May and $59,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $29,250 each quarter, payable in the first month of the following quarter.
The company’s balance sheet as of March 31 is given below:
| Assets | ||
| Cash | $ | 93,000 |
| Accounts receivable ($53,640 February sales; $630,720 March sales) | 684,360 | |
| Inventory | 162,368 | |
| Prepaid insurance | 30,500 | |
| Property and equipment (net) | 1,140,000 | |
| Total assets | $ | 2,110,228 |
| Liabilities and Stockholders’ Equity | ||
| Accounts payable | $ | 119,000 |
| Dividends payable | 29,250 | |
| Common stock | 1,180,000 | |
| Retained earnings | 781,978 | |
| Total liabilities and stockholders’ equity | $ | 2,110,228 |
The company maintains a minimum cash balance of $69,000. 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 $69,000 in cash.
Required:
A budgeted balance sheet as of June 30.
In: Accounting
You have just been contracted as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets 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 - $10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow:
|
January (actual) |
20,000 |
|
February (actual) |
26,000 |
|
March (actual) |
40,000 |
|
April (budget) |
65,000 |
|
May (budget) |
100,000 |
|
June (budget) |
50,000 |
|
July (budget) |
30,000 |
|
August (budget) |
28,000 |
|
September (budget) |
25,000 |
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 bracelets sold in the following month.
Suppliers are paid $4 for each bracelet. 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 discounts. The company has found, however, that 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:
Variable expenses:
Sales commissions 4% of sales
Fixed expenses:
Advertising $200,000
Rent $18,000
Salaries $106,000
Utilities $ 7,000
Insurance $3,000
Depreciation $14,000
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.
Other relevant data is given below:
Cash balance as of September 30 $74,000
Inventory balance as of September 30 $112,000
Merchandise purchases for September $200,000
The company maintains a minimum cash balance of at least $50,000 at the end of each month. 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 the exact amount needed 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 will pay the bank all of the accrued interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash.
Required:
Prepare a cash budget for the three-month period ending June 30. Include the following detailed budgets:
1.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 $50,000.
In: Accounting
In: Accounting
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—$15 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) | 21,800 | June (budget) | 51,800 |
| February (actual) | 27,800 | July (budget) | 31,800 |
| March (actual) | 41,800 | August (budget) | 29,800 |
| April (budget) | 66,800 | September (budget) | 26,800 |
| May (budget) | 101,800 | ||
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 $4.90 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:
| Variable: | |||
| Sales commissions | 4 | % of sales | |
| Fixed: | |||
| Advertising | $ | 290,000 | |
| Rent | $ | 27,000 | |
| Salaries | $ | 124,000 | |
| Utilities | $ | 11,500 | |
| Insurance | $ | 3,900 | |
| Depreciation | $ | 23,000 | |
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $20,500 in new equipment during May and $49,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $21,750 each quarter, payable in the first month of the following quarter.
The company’s balance sheet as of March 31 is given below:
| Assets | ||
| Cash | $ | 83,000 |
| Accounts receivable ($41,700 February sales; $501,600 March sales) | 543,300 | |
| Inventory | 130,928 | |
| Prepaid insurance | 25,500 | |
| Property and equipment (net) | 1,040,000 | |
| Total assets | $ | 1,822,728 |
| Liabilities and Stockholders’ Equity | ||
| Accounts payable | $ | 109,000 |
| Dividends payable | 21,750 | |
| Common stock | 980,000 | |
| Retained earnings | 711,978 | |
| Total liabilities and stockholders’ equity | $ | 1,822,728 |
The company maintains a minimum cash balance of $59,000. 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 $59,000 in cash. 3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
In: Accounting
|
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 comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. 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—$11 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) |
20,200 |
June (budget) |
50,200 |
|
February (actual) |
26,200 |
July (budget) |
30,200 |
|
March (actual) |
40,200 |
August (budget) |
28,200 |
|
April (budget) |
65,200 |
September (budget) |
25,200 |
|
May (budget) |
100,200 |
||
|
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 $4.1 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 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: |
|
Variable: |
|||
|
Sales commissions |
4% |
of sales |
|
|
Fixed: |
|||
|
Advertising |
$ |
210,000 |
|
|
Rent |
$ |
19,000 |
|
|
Salaries |
$ |
108,000 |
|
|
Utilities |
$ |
7,500 |
|
|
Insurance |
$ |
3,100 |
|
|
Depreciation |
$ |
15,000 |
|
|
Insurance is paid on an annual basis, in November of each year. |
|
The company plans to purchase $16,500 in new equipment during May and $41,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,750 each quarter, payable in the first month of the following quarter. |
|
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 $51,000 (Cash deficiency, repayments and interest should be indicated by a minus sign.) |
|
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3. |
A budgeted income statement for the three-month period ending June 30. Use the contribution approach. |
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In: Accounting
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—$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 |
| February (actual) | 30,000 | July (budget) | 34,000 |
| March (actual) | 44,000 | August (budget) | 32,000 |
| April (budget) | 69,000 | September (budget) | 29,000 |
| May (budget) | 104,000 | ||
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:
| Variable: | |||
| Sales commissions | 4 | % of sales | |
| Fixed: | |||
| Advertising | $ | 400,000 | |
| Rent | $ | 38,000 | |
| Salaries | $ | 146,000 | |
| Utilities | $ | 17,000 | |
| Insurance | $ | 5,000 | |
| Depreciation | $ | 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:
| Assets | ||
| Cash | $ | 94,000 |
| Accounts receivable ($57,000 February sales; $668,800 March sales) | 725,800 | |
| Inventory | 165,600 | |
| Prepaid insurance | 31,000 | |
| Property and equipment (net) | 1,150,000 | |
| Total assets | $ | 2,166,400 |
| Liabilities and Stockholders’ Equity | ||
| Accounts payable | $ | 120,000 |
| Dividends payable | 30,000 | |
| Common stock | 1,200,000 | |
| Retained earnings | 816,400 | |
| Total liabilities and stockholders’ equity | $ | 2,166,400 |
The company maintains a minimum cash balance of $70,000. 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 $70,000 in cash.
Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:
4. A budgeted balance sheet as of June 30.
In: Accounting
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—$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 |
| February (actual) | 30,000 | July (budget) | 34,000 |
| March (actual) | 44,000 | August (budget) | 32,000 |
| April (budget) | 69,000 | September (budget) | 29,000 |
| May (budget) | 104,000 | ||
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:
| Variable: | |||
| Sales commissions | 4 | % of sales | |
| Fixed: | |||
| Advertising | $ | 400,000 | |
| Rent | $ | 38,000 | |
| Salaries | $ | 146,000 | |
| Utilities | $ | 17,000 | |
| Insurance | $ | 5,000 | |
| Depreciation | $ | 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:
| Assets | ||
| Cash | $ | 94,000 |
| Accounts receivable ($57,000 February sales; $668,800 March sales) | 725,800 | |
| Inventory | 165,600 | |
| Prepaid insurance | 31,000 | |
| Property and equipment (net) | 1,150,000 | |
| Total assets | $ | 2,166,400 |
| Liabilities and Stockholders’ Equity | ||
| Accounts payable | $ | 120,000 |
| Dividends payable | 30,000 | |
| Common stock | 1,200,000 | |
| Retained earnings | 816,400 | |
| Total liabilities and stockholders’ equity | $ | 2,166,400 |
The company maintains a minimum cash balance of $70,000. 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 $70,000 in cash.
Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:
3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
In: Accounting
Part 2: Problems
(b) Knowing that he likes pizza, Paul’s grandmother gives him a birthday gift certificate of 60 redeemable only at Pizza Hut. Though Paul is happy to get this gift, his grandmother did not realize that she could have made him exactly as happy by spending far less than she did. How much would she have needed to give him in cash to make him just as well off as with the gift certificate?
In: Economics