Prepare a master budget for the three-month period ending June 30. I have the fi
ID: 2558081 • Letter: P
Question
Prepare a master budget for the three-month period ending June 30.
I have the first part done but i need help figuring out the next three parts mostly the part i have done im not sure is correct - and how do i figure out the sales commissions and financing?
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):
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 $5.40 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 $23,000 in new equipment during May and $54,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $25,500 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 $64,000. 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 $64,000 in cash.
Required:
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 $64,000.
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) 22,800 June (budget) 52,800 February (actual) 28,800 July (budget) 32,800 March (actual) 42,800 August (budget) 30,800 April (budget) 67,800 September (budget) 27,800 May (budget) 102,800 Earrings Unlimited Cash Budget For the Three Months Ending June 30 April $88,000 May June Quarter Beginning cash balance Add collections from customers Total cash available Less cash disbursements $88,000 869,4401,321,4001,548,1203,738,960 957,440 1,321,4001,548,1203,826,960 330,324 340,000 32,000 134,000 435,348 340,000 32,000 134,000 276,4241,042,096 340,000 1,020,000 96,000 402,000 Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid 32,000 134,000 14,000 54,000 0 850,424 697,696 42,000 77,000 25,500 2,704,596 1,122,364 14,000 25,500 875,824 81,616 14,000 23,000 0 978,348 343,052 Total cash disbursements Excess (deficiency) of cash available over disbursements Financing Borrowings Repayments Interest Total financing Ending cash balance $81,616$ 343,052 697,696$ 1,122,364Explanation / Answer
1.a.Prepartion of Sales Budget April May June Total Sales Unit 67,800 102,800 52,800 223,400 Selling Price/Pair $18 $18 $18 $8 Budgeted Sales Value $1,220,400 $1,850,400 $950,400 $1,787,200 1.b.Schedule of Expected Cash Collection April May June Total Prior Period Sales-Feb $51,840 $51,840 Prior Period Sales-March 539280 77040 $616,320 April Sales $13,560 $47,460 $6,780 $67,800 May Sales $20,560 $71,960 $92,520 June Sales $10,560 $10,560 Total Cash Collection $604,680 $145,060 $89,300 $839,040 1.c.Schedule of Purchase Budget April May June Total Sales Unit 67,800 102,800 52,800 223,400 Less Ending Inventory (40% of Next Month Sales) 41,120 21,120 13,120 Total Needs 108,920 123,920 65,920 298,760 Less: Beginning Inventory 27,120 41,120 21,120 Purchase Unit 81,800 82,800 44,800 209,400 Cost/Pair $5.40 $5.40 $5.40 $5.40 Purchase Cost 441720 447120 241920 1130760 1.d.Schedule of Expected Cash Payment April May June Total Account payable, Beginning Balance $114,000 $114,000 April Purchase $220,860 $220,860 $441,720 May purchase $223,560 $223,560 $447,120 June Purchase $120,960 $120,960 Total Cash Collection $334,860 $444,420 $344,520 $1,123,800 As per Chegg Policy only First question having 4 sub part can be solved