The company sells many styles of earrings, but all are sold for the same price—$
ID: 2522678 • Letter: T
Question
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):
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:
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:
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: (ONLY NEED HELP ON 2, 3 & 4)
Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:
1. a. A sales budget, by month and in total.
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 $70,000.
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.
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) 104,000Explanation / Answer
Earrings Unlimited Sales Budget Months April May June Quarter Budgeted unit sales 69000 104000 54000 227000 Selling Price Per unit $ 19.00 $ 19.00 $ 19.00 $ 19.00 Total sales $ 1,311,000.00 $ 1,976,000.00 $ 1,026,000.00 $ 4,313,000.00 Schedule of expected cash collections Months Sales April May June Quarter February sales=(30000*$19)*10% in April $ 570,000.00 $ 57,000.00 $ 57,000.00 March Sales=(44000*$19)*70% in April and (44000*$19)*10% in May $ 836,000.00 $ 585,200.00 $ 83,600.00 $ 668,800.00 April sales=($1311000*20%) in April,($1311000*70%) in May and ($1311000*10%) in June $ 1,311,000.00 $ 262,200.00 $ 917,700.00 $ 131,100.00 $ 1,311,000.00 May sales=($1976000)*20% in May and ($1976000*70% ) in June $ 1,976,000.00 $ 395,200.00 $ 1,383,200.00 $ 1,778,400.00 June Sales=($1026000*20%) in June $ 1,026,000.00 $ 205,200.00 $ 205,200.00 Total Cash collections $ 5,719,000.00 $ 904,400.00 $ 1,396,500.00 $ 1,719,500.00 $ 4,020,400.00 Merchandise Purchase Budget April May June Quarter Budgeted Unit Sales 69000 104000 54000 227000 Add:Ending Inventory=(104000*40%) in April,(54000*40% in May),(34000*40%) in June 41600 21600 13600 13600 Total Needs 110600 125600 67600 240600 Less: Opening Inventory=($165600/6) in April 27600 41600 21600 27600 Required Purchases 83000 84000 46000 213000 Cost of Purchase Per Unit $ 6.00 $ 6.00 $ 6.00 $ 6.00 Total Cost of Purchase $ 498,000.00 $ 504,000.00 $ 276,000.00 $ 1,278,000.00 Budgeted Cash disbursement of Mercendise Purchase Months April May June Quarter Accounts Payable $ 120,000.00 $ 120,000.00 April=($498000*50%) in April,($498000*50%) in May $ 249,000.00 $ 249,000.00 $ 498,000.00 May=($504000*50%) in May an ($504000*50%) in June $ 252,000.00 $ 252,000.00 $ 504,000.00 June=($276000*50%) in June $ 138,000.00 $ 138,000.00 Total Cash Payments $ 369,000.00 $ 501,000.00 $ 390,000.00 $ 1,260,000.00 Earrings Unlimited Cash Budget For the three months ending June 30th Months April May June Quarter Cash Balance $ 94,000.00 $ 85,960.00 $ 275,420.00 $ 94,000.00 Add: Collections from customer $ 904,400.00 $ 1,396,500.00 $ 1,719,500.00 $ 4,020,400.00 Total Cash available $ 998,400.00 $ 1,482,460.00 $ 1,994,920.00 $ 4,114,400.00 Less: Disbursement Mercendise Purchase $ 369,000.00 $ 501,000.00 $ 390,000.00 $ 1,260,000.00 Advertisement $ 400,000.00 $ 400,000.00 $ 400,000.00 $ 1,200,000.00 Rent $ 38,000.00 $ 38,000.00 $ 38,000.00 $ 114,000.00 Salaries $ 146,000.00 $ 146,000.00 $ 146,000.00 $ 438,000.00 Commissions=($1311000*4%) in April,($1976000*4%) in May and ($1026000*4%) in June $ 52,440.00 $ 79,040.00 $ 41,040.00 $ 172,520.00 Utilities $ 17,000.00 $ 17,000.00 $ 17,000.00 $ 51,000.00 Equipment Purchase $ 26,000.00 $ 60,000.00 $ 86,000.00 Dividend Paid $ 30,000.00 $ 30,000.00 Total Disbursemnts $ 1,052,440.00 $ 1,207,040.00 $ 1,092,040.00 $ 3,351,520.00 Excess/Deficiency of receipts over $ (54,040.00) $ 275,420.00 $ 902,880.00 $ 762,880.00 disbursements Financing: Borrowings $ 140,000.00 $ 140,000.00 Repayments $ (140,000.00) $ (140,000.00) Interest=(140000*1%*3) $ (4,200.00) $ (4,200.00) Total Financing $ 140,000.00 $ (144,200.00) $ (4,200.00) Cash Balance ,ending $ 85,960.00 $ 275,420.00 $ 758,680.00 $ 758,680.00 Earrings Unlimited Budgeted Income Statement For the three months ended June 30th Sales $ 4,313,000.00 $ 4,313,000.00 Variable Expenes Cost of goods sold=($165600+$1278000-13600*6) $ 1,362,000.00 Commission $ 172,520.00 $ 1,534,520.00 Contribution Margin $ 2,778,480.00 Fixed Expenses Advertising $ 1,200,000.00 Rent $ 114,000.00 Salaries $ 438,000.00 Utilities $ 51,000.00 Insurance $ 5,000.00 Depreciation=($34000*3) $ 102,000.00 $ 1,910,000.00 Net Operating Income $ 868,480.00 Interest Expense $ (4,200.00) Net Income $ 864,280.00 Earrings Unlimited Budgeted Balance Sheet June 30th Assets Cash $ 758,680.00 Accounts Receivable $ 1,018,400.00 Inventory=(13600*$6) $ 81,600.00 Prepaid insurance=($31000-$5000) $ 26,000.00 Property & Equipment ,net=(1150000+26000+60000-102000) $ 1,134,000.00 Total Assets $ 3,018,680.00 Liabilities and stockholder's equity Accounts Payable $ 138,000.00 Dividend Payable $ 30,000.00 Capital Stock $ 1,200,000.00 Retained Earning $ 1,650,680.00 Total Liabilities and stockholder's equity $ 3,018,680.00 Cost of goods sold=Opening stock+Purchases-Closing stock Accounts Receivable May sales 1976000*10% $ 197,600.00 June sales 1026000*80% $ 820,800.00 Total $ 1,018,400.00 Retained Earnings at june 30th Balance on March 31st $ 816,400.00 Add: Net Income $ 864,280.00 Total $ 1,680,680.00 Less: Dividend declared $ 30,000.00 Balance on June 30th $ 1,650,680.00