Please, help me with this problem. Thanks You have just been hired as a new mana
ID: 2601325 • Letter: P
Question
Please, help me with this problem. Thanks
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 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 to prepare comprehensive budgets for the 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) February (actual) March (actual) April (budget) May (budget) 24,000 June (budget) 30,000 July (budget) 44,000 August (budget) 69,000 September (budget) 104,000 54,000 34,000 32,000 29,000 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 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 Rent Salaries Utilities Insurance Depreciation $400,000 $ 38,000 $ 146,000 $ 17,000 $5,000 $ 34,000Explanation / Answer
1 prepare a master budget for the three month period ending june30 (a) Sales budget , by month and total April may June Quarter Budgeted unit sales 69000 104000 54000 227000 Seeling price per unit 19 19 19 19 Total sales 1311000 1976000 1026000 4313000 (b) Expected cash collections from the sales April may June Total feb sales 57000 57000 march sales 585200 83600 668800 april sales 262200 917700 131100 1311000 may sales 395200 1383200 1778400 June sales 205200 205200 Total collections 904400 1396500 1719500 4020400 © Purchase budget in Units and Dollars April may June Total Budgeted unit sales 69000 104000 54000 227000 Add: Closing Stock 41600 21600 13600 13600 104000*0.40 54000*0.40 34000*0.40 Total needs 110600 125600 67600 240600 less: opening Stock (69000*0.40) 27600 41600 21600 27600 required purchases 83000 84000 46000 213000 Price per unit (purchases) 6 6 6 6 required Dollar Purchases 498000 504000 276000 1278000 (d) Expected cash distribution for merchandise purchases , by month and Total April may June Total Accounts payables 120000 120000 April Purchases 249000 249000 498000 may purchases 252000 252000 504000 June purchases 138000 138000 Total cash payments 369000 501000 390000 1260000 cash budget by Month and total EARRINGS unlimited cash budget For the three months ending june30 April may June Total beginning cash balance 94000 70,960 2,60,420 94000 Add: Collections from customers 904400 1396500 1719500 4020400 Total cash Avaialble 998400 1467460 1979920 4114400 less; cash distributions merchandise payments 369000 501000 390000 1260000 Advertising 400000 400000 400000 1200000 rent 38000 38000 38000 114000 salaries 146000 146000 146000 438000 Commissions (4% of Sales) 52440 79040 41040 172520 Utilities 17000 17000 17000 51000 Equipment purchases 26000 60000 86000 Dividend paid 30000 0 30000 Total cash Disbursements 1052440 1207040 1092040 3351520 Excess cash Available over Disc=bursements -54040 260420 887880 762880 Minimum Balance required 70,000 70,000 70,000 70,000 Financing Borrowing 1,25,000 125000 repayments -125000 -125000 Interest -2500 -2500 Total Financing 1,25,000 0 -1,27,500 Ending cash balance 70,960 260420 760380 760380 Borrowing for april =54040+70000 =124040 Borrwing need to be made only in thousands , so Total Borrowing =125000 Interest expense for 2 months =125000*1%*2 months =2500 3 Budgeted income Statement for the three months endings Amount in $ Amount in $ Sales 4313000 variable Expenses Purchases 1278000 Commissions (4% of Sales) 172520 Contribution 2862480 Fixed Expenses Advertising 1200000 Insurance 3*$5000 15000 rent 114000 salaries 438000 Depreciation 34000*3 102000 Interest expenses 2500 Utilities 51000 Total fixed expenses 1922500 -1922500 Net operating income 939980 4 ) Budgeted balance sheet on june30 Amount in $ Assets cash 760380 Accounts receivables (may - 197600, June -820800 1018400 Inventory 13600*$6 81600 prepaid insurance (31000-15000) 16000 property & Equipment (1150000+26000+60000-102000) 1134000 other assets 84000 Total Assets 3094380 Liabilities & Stock holders Equity Accounts payables 138000 Dividend payables 30000 Common stock 1200000 retained Earnings (816400+939980-30000) 1726380 Total Liabiltiies & Stock holders equity 3094380 Accounts receivables May receivables 1976000*0.10 197600 June receuvables 1026000*0.80 820800 1018400