The company sells many styles of earrings, but all are sold for the same price-$
ID: 2333493 • Letter: T
Question
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) February (actual) March (actual) April (budget) May (budget) 22,200 June (budget) 28,200 July (budget) 42,200 August (budget) 67,200 September (budget) 27,200 52,200 32,200 30,200 102,200 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 $5.10 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 Rent Salaries Utilities Insurance Depreciation $ 310,000 $ 29,000 128,000 $ 12,500 $ 4,100 $ 25,000Explanation / Answer
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1.a Sales budget April May June Quarter Budgeted Unit Sales 67,000 1,02,200 52,200 2,21,400 Selling Price per unit ($) 15 15 15 15 Total Sales ($) 1005000 1533000 783000 3321000 1.b Earrings Unlimited Schedule of Expected Cash Collections April May June Quarter February Sales 42,300 42,300 March Sales 443100 63300 5,06,400 April Sales 201000 703500 100500 10,05,000 May Sales 306600 1073100 13,79,700 June Sales 156600 1,56,600 Total Cash Collections 6,86,400 1073400 1330200 30,90,000 1.c Earrings Unlimited Merchandise Purchase Budget April May June Quarter Budgeted Unit Sales 67,000 1,02,200 52,200 2,21,400 Add: Desired ending merchandise inventory 40880 20880 12880 12880 Total Needs 1,07,880 1,23,080 65,080 2,34,280 Less: Beginning Merchandise Inventory 26800 40880 20880 26800 Required Purchase 81,080 82,200 44,200 2,07,480 Unit Cost 5.1 5.1 5.1 5.1 Required Dollar Purchase 413508 419220 225420 1058148 1.d Earrings Unlimited Schedule of Cash Disbursements for Merchandise Purchases April May June Quarter Accounts payable 131070 131070 April Purchases 206754 206754 413508 May Purchases 209610 209610 419220 June Purchases 112710 112710 Total Cash Payments 337824 416364 322320 1076508